358 Responses to “Further proof that Sunnyvale now has affordable housing…”

In this neighborhood, you could drop in a nice manufactured house and nobody would blink, because the next block over, and the next 20, are filled with them. Nice public transit too – the 55 bus goes down the street and the light-rail is nearby. This is exactly the kind of house I should be able to afford – an old rancher in a compromised area, but close to public transportation. If this is the next step up from East San Jose, then I will have to wait a while still before I buy.

You’d be surprised. That part of Sunnyvale does not look like a ‘hood in the East Bay. It’s actually fairly clean. Yes, the house is ugly like so many others throughout the BA, but it’s located near jobs; as long as there are opportunities for work, there are opportunities to move up in life.

RE,
Stop fooling yourself. This house is a piece of Sh!t, along with the majority of the homes displayed on this site, which incidentally is done so to show the moronic stupidity of the housing market here and its lack of ties to reality.

You keep telling yourself that everything’s all hunky-dory and that good times are around the corner, Tech will save us all, and home values are surely soon to follow.

The REALITY is that the stock market has been down every single day except for one over the last 7 days. Companies are laying off people like mad, Henry Paulson just announced that bailout money will not be used to purchase troubled assets( homes), and lastly, the BA finds itself in a precarious situation where its economy is sinking, home prices are still way too high given the economy and thus being seen more and more as a liability by potential buyers with less and less confidence in their jobs.

Get out and look around. The housing market will NOT be coming back anytime soon. That is a fact. So stop preaching 2005 era real estate shill language. It makes you sound foolish.

Ol’ IrvineRenter has some screwed up “facts” in his post though. The most glaring is his assertion that there are only TWO kinds of ARM (neg am and I/O). The far more prevalent would be the ARM with regular amortization (no data to back up this statement). Those have been around the longest time.

Of course he is immortal. Do you think used car salesman stops spewing bullshits even after proving him wrong? Because his salary depends on the ability to spew bullshit. He would keep doing it as long he is in job and needs to feed his family and stomach.

I’m not trying to be mean. But seriously- its almost irresponsible to continually tout Real Estate as some fantastic, ever-performing asset that trumps everything else, and especially in a heavily overpriced area tied almost exclusively to a wobbly tech market that fuels itself via angel fund money and tends to operate with volatility.

Yes, the house is ugly like so many others throughout the BA, but it’s located near jobs; as long as there are opportunities for work, there are opportunities to move up in life.
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I am convinced that current owner is “moving up”. And he/she accumulated so much equity in this house that there is absolutely no space left inside house. That explains why the agent could enter inside house to take some more pictures.
Owner is “moving up” to bigger home so that he can fit his equity inside house.

Hey, I think it was still a great effort on the part of burbed. Though the photopgraph makes the home less than appealing, there is some potential. Thanks a lot for the information. If you are interested in foreclosure homes or are having issues with a foreclosure of your own, hit up me site at http://www.homelandassistance.com.

Of course not. They don’t have to pay because they are “moving up”. My best guess: owner is “moving up” to Palo Alto so that his kids can go to Stanford (because Palo Alto residents have special quota in Stanford).

Think out of the box. Some one sold this house for $605K, and is on to better things. That person could be you next time.

Bob,

Aren’t you overreacting? What the hell did I say in #8 that got you so worked up? Read it again. All I said was that the neighborhood is decent. It’s an affordable place that’s not in a ‘hood. You’re bringing up all kinds of things I never said to pick a fight.

Someone paid 600k for that thing? What- were they smokin’ crack? Sort of funny now that its been a few years since the crash occurred to look back at what was “normal” back then… paying 600k for ghetto-licious houses. 400k is still way the hell too much for this thing. In two more years, we’ll think that it was equally ridiculous to pay 400k for houses like these once they going rate arrives in the 300-350k range… which I guess is a just OK price to pay for a true ghetto starter home in the BA.

And to add punctuation to my previous post… Dow down 400. We’re going to be kissing 8,000 soon, and thats around 50% off of what it was a year ago. Still a grand idea to be sinking money into a mortgage?

Yes, as a matter of fact indeed. But since I’ve tirelessly explained this to your unbelieving ears, I won’t waste my time reiterating.Anyone that tells you that housing is better than stocks and investments is smokin’ something. Indeed- I’d rather have cash, investments, and other non-liable assets then a house that absolutely requires me to pay the bank something or lose it along with my credit and whatever money I put into it. By the way, financially, is it better to be employed, or unemployed?

I’m just pointing out that stocks and real estate have been following the same direction with same amplitude these past couple of years, at least in my area. So I’m unclear why one would advise one other the other purely based on historical reasons. If you were doing your homework you’d know I advocated several times investing in stocks rather than real estate.
Finally is it better financially to be employed or unemployed? Employed I supposed, unless you use your unemployment time to generate royalties-earning material or equity-generating work. But how’s that relevant to real estate versus stocks? Are you on crack?

Guys,
Think out of the box. Pay $600K for this home and very it will be 1 million. Instant equity baby, instant equity!”

Absolutely, Pralay. Feels like I’m looking into a crystal ball.

Bob, it depends on what and when you buy. Some stocks are up, some are down. Some homes are up (very few), most are down.

Right now, both are not looking too great. If I had to choose one, I would choose stocks as they are more liquid and adjust more quickly. Because of their increased liquidity, they are more likely to accurately reflect the market. Whereas homes still have a ways to fall, stocks may not drop as much because they might have already dropped.

RE, you are absolutely right that ‘it could have been us’. No one can dispute this – if we had bought at $187.5k, and sold at $605k, we’d have made a great investment, and pocketed serious profit, let’s call that scenario “A”. Everyone who hates your guts and didn’t yet in life get to do “A” has to just deal with it – this kind of “A” event happened, and happens all over the bay area because of the price run ups from 2001-2007. I can admit it, and so should everyone else. I also gave many friends who own/owned homes during the ’04-’07 period the advice that they may want to consider selling, because these prices are very high, and they are sitting on a huge profit. They can always rent an even nicer house while they wait for the prices to come back down (because rents are so low compared to owning), and then buy a better place for less than they sold. Just wait for the market.

But would YOU admit, RE, that the person who bought in ’05 at $605k made a BAD investment, and IF they manage to sell at $399k, would take a terrible loss? Let’s call this scenario “B”. Scenario “B” is a bad kind of real estate transaction to be doing, and people should try to get “A”, and avoid “B”. Would you agree with that statement, RE? It’s a yes or no question. I look forward to either your avoidance of the issue or tortured way of getting out of it…

The point is, once again, that there are good times to buy and bad times to buy. Also good times to sell, and bad times to sell. It depends on the property, and the location, and your needs. Specifically, on the purely financial side – you want “A” and not “B”. Don’t you, agree, RE? (Again, yes or no question :-).

And anyone who is my friend, I would give advice on when to buy and when to sell that was in their own interests. Now if I had other motivations, I might just tell them to always buy…

Now none of us can time the market perfectly, and I don’t think anyone should think they can. But a forum like this is pretty much for the purpose of speculating when it’s a good or bad time to buy or sell, and where, and why.

And this kind of sales history is EXACTLY the kind of evidence that should scare anyone thinking of buying in the BA or the RBA. You don’t want to be “B”. You could EASILY be “B”, if things go sour on the block you buy your house on.

Now, scared is OK – it doesn’t mean never buy. It just means if you’re putting $40k-$200k or more down, and taking on debt of $300k, or $600k, or $1.5M, you should be appropriately scared – it’s a big deal, and you don’t want to screw up and be the sucker (“B”). You should do your homework, and not rely on slogans like “you’ll double your investment in 10 years”. Instead, find a good property, in a good location, and pay a reasonable amount for it.

If it’s priced too high, don’t buy. You can call that ‘priced out forever’ if you want – I’ll call it ‘priced out of a bad deal, until prices come down, then priced in’.

We all understand how great it would be to be “A”, and we WOULD, given the opportunity. But we have no intention of becoming “B” just because some blog poster said that some zipcodes would always have 10%/yr appreciation forever. That’s silly. It’s more likely that RE’s favorite zipcodes will have their fair share of “B”s, just like this place in Sunnyvale did. Nice homes. Nice places to live. Overpriced. Looks like parts of Sunnyvale are coming back down to earth – at the right price, they are a good investment.

“If it’s priced too high, don’t buy. You can call that ‘priced out forever’ if you want – I’ll call it ‘priced out of a bad deal, until prices come down, then priced in’.”

This is a good statement. In the recent years, in order to actually ‘purchase’ a home, one was virtually guaranteed that they would be competing with idiots who 1) were willing to take out toxic loans, 2) had no intention to pay the entire loan back 3) were bidding with someone else’s money and 4) intoxicated by the prospect of perpetual appreciation.

To outbid an idiot such as those mentioned above during such high times is absolute lunacy.

This area is an incredible dump and will be very slow to appreciate vs parts of Campbell, in my opinion. Some of this lakeshore area came up for auction a few months ago and I went to the open houses. I don’t even think the rental market there would be any good.

A Lewis, you make some good points but I want to point out that you yourself talked about appreciation between 2001-2007. Much of the bay area experienced a decline in 2001 for the dotcom bust, so 2001 was lower than 2000 pricing- can you at least admit that buying at 2001 levels -NOW- with lower interest rates than then, and prices lower than then, you are more likely buying at “A” levels than “B”?

I agree with you on the “if its priced too high don’t buy” but now is not one of those times.

I have to admit I’m not up on the nicknames used here- I think Chuck is Real Estater but who is Fristy? or Frisky?

Real Estater probably never actually went to the Lakebird area. I had high hopes when I went to see the house up for auction a few months ago. The pictures don’t look bad but the neighborhood- when you see it- is a slum.

bob I can almost guarantee you the people buying this are investors intending to rent it out. Payments on this are about $2K per month. I don’t know if it is rentable for that, but most 3/2 ranchers I buy can easily go for $2K (except I buy TJ Martin ranchers which are higher quality), so there is ample demand to rent at that price point.

People here really don’t understand the RE investment point of view, I don’t know if you are in denial or really don’t understand. It doesn’t matter what happens to real estate prices here, even if they fall a little and you are cash flow positive, you are still going to make a mint on somebody else’s dime.

Willow Glenner — yesterday you said that renting was making landlords like you rich without even depending on appreciation. Example used was a 3150/month rental in Cambrian. But if houses in my area, 95051, rent for about $2500 a month and at 620K/avg, I am assuming the monthly payments to be around 4000/month. How do you get rich on that?
Also, you said there 3/2s in Campbell for 500K? I have been watching that city for about a year, and i have seen only a single one that meets that description (it was on Elam Ave if i remember right)
Thanks . . .I appreciate reading your posts

Regarding WillowGlenner’s post #44: sure it’s a dump, but people were willing to pay $605k to live there as far back as 12/05! The market is sooooo smart, that’s where it priced it. Why should we doubt the market? (end sarcasm).

I should think that RE’s arguments to debate me should be something like, “look, if you don’t think it’s worth that, fine, but the market does – people ARE paying these prices, and that’s that – that’s what they value it at.” It would be a pretty good point. But I would argue that a small minority of the population buys property each year, yet these sales are ‘comps’ for every property in the area. It doesn’t mean all potential market participants would agree a fair price was achieved on the most recent sale. The real estate market is special, and pricing is different than in a commodity market, or a typical consumer goods market.

So it’s plausible for me to argue that an increasing number of sales over time, at these exorbitant prices, were by a small minority of buyers who have BAD judgment about what all these homes are worth. And there are a lot of interested parties pushing the prices up (like, hmmm, the buyer and seller’s agent, the bank, and the appraiser) and only a few annoying blogs trying to urge that prices are too high.

I think these folks were swayed by emotion, inaccurate and inadequate information on which to judge that a rather ordinary 3/2 in fancy Atherton isn’t really worth $1000/sqft. And the vast majority of them BELIEVED in the %10/yr appreciation forever story.

So things are the way they are in Atherton. But I submit to you that when things start to turn, and I will assert, without proof, that we’re already past the inflection point, people will start to BELIEVE otherwise.

And once you get those folks BELIEVING prices are coming down, and they’ll have negative appreciation for some time, it will be just as hard to convince them prices are too low with boring things like facts about fundamentals like rent/own and income/debt ratios, appreciation compared to CPI, etc.

Inevitably, these emotional folks on the margin will overshoot low on the downside for some of the same reasons. And this time the interested parties (brokers, banks, etc.), will not stop people from taking less than offering bids, and even encourage them to ‘close now!’, because they will be VERY very interested in any sale, and any commission at all. At that point, or even before the prices have overshot low, but at least come back to earth, I will advise my friends to buy.

Let’s check in once a year around Thanksgiving, and look up some properties with 2 sales during time periods we’ve argued about, and see what real appreciation there was…

By the way, I loved your comment, RE, about locked in salaries and bonuses, and locked in profits from when the Dow was at 12,000.

That’s great if your next bonus is guaranteed in some way. But nobody has a ‘locked’ in bonus for next year, too (yeah, my ’08 bonus is locked in, too, and I’m happy to save it to buy a house at a reasonable price later – but I don’t expect as big a bonus in ’09 because of the recession).

Obviously you were trying to argue there are just piles and piles of smart folks like you with perfectly safe jobs (I assume you have 0% chance of layoff, right? Do you think a lot of people have that?), an apparently guaranteed bonus plan (is there no condition where your bonus next year is lower or zero? Wow, do you think a lot of people have a contract like that?), and they also timed the stock market perfectly, and have been sitting in Treasuries since May. Sure – there are lots of those folks. THEY are the ones who will keep prices in Atherton going up 10%/yr forever. It’s only us silly whiners on this blog who don’t have that going for us. Sure, RE, that’s likely.

Let me try one last one on you, RE. You believe that because of supply and demand, and location, and other fundamentals, that prices in the best RBA zipcodes will, on the long run, increase at better than inflation, right? I assume you believe that is true for very long time horizons, right? You don’t expect some correction back to match inflation, even on 20 or 40 or 60 year timescales?

And if so, what, approximately would you assume that better than inflation rate to be? 7%/yr better than inflation? 2%/yr better? I mean, I assume a serious real estate person like yourself makes estimates and runs the numbers in a spreadsheet from time to time to estimate how great any real estate buy you make (or have already made) in the RBA will do? I just want you to say what you consider to be approximately the RBA ‘outperform’ CPI factor? You don’t have to have proof, I just want your opinion.

My opinion is that on the longest timescales (>50 years) it’s exactly zero. On shorter timescales, like say 10 years, it can be a few %/yr under the best circumstances. And my opinion is that over any 30 year period, it will undergo corrections, periods where it is negative compared to inflation, by up to a few %/yr. Care to differ?

For non-RBA zipcodes, the fluctuations are much higher – places without great combinations of locations, weather, school, jobs will be speculated on in a more volatile fashion, so the price hikes and price falls will be even bigger.

The point I want to make is that anyone who says “you’ll double your investment, on average, in 10 years”, is assuming approximately 7%/yr appreciation. Let’s say you call average inflation to be 3%, that’s a 4%/yr premium over inflation.

Take a modest home in the best part of Atherton, or Menlo Park or Cupertino or whatever your RBA happy place is. Say it’s worth 1 million dollars today (that’s just a 2 or 3 bedroom home in the best neighborhoods, right?).

Would you believe it will undergo 7%/yr appreciation for the next ten years? That would increase it’s value to 1.97 million in 2018. And to 3.87M in 2028, and to 7.61M in 2038, 14.97M in 2048, and 29.36M in 2058. The 3%/yr adjusted values would be 1.34/1.81/2.43/3.26/4.38M. Compare the end results of your belief system after 50 years. $29.36 million vs. $4.38 million.

Sorry, I don’t believe in the $29.36 million fantasy. The $4.38 one is expensive enough as it is. Still a fancy expensive place to live…that hardly anyone can afford.

Re. WG #47 – yes, we agree, if you are finding ’01 pricing today, in ’08, AFTER accounting for inflation, you are probably finding a very good deal. I probably should have stated more clearly what I meant when I said ‘price run-ups from 2001-2007′ – I meant if you bought in 2001, you saw the price go up every year through 2007. I didn’t mean ’01 was a year of big appreciation over ’00. So I think we agree.

Doesn’t it give you a warm, fuzzy, feeling? How about a hug? Even RE could use a hug. Hugs all around!

Of my 7 closest friends from high school, I finally got word that one has been laid off due to the recession. Worked for a tech company in San Jose that survived ’01…they laid off half the company last Monday. He got 2 weeks severance. Don’t think he’ll be in the real estate market anytime soon…he’s a renter now.

Let’s hope the statistics in my circle of friends don’t get much worse than 1 in 8 of us laid off (all professionals/tech guys around the Bay Area). 1/8 = 12.5% – I don’t think unemployment will ever be THAT bad around here! And I bet he’ll find a new job in less than 6 months – but it’s going to be hard work in this economy.

More on WG #47 – you say “but now is not one of those times”. Anywhere you’re finding ’01 pricing is not a “B” scenario.

As RE maintains, and the latest sales price data shows, the best, yummiest parts of the RBA are NOT down to ’01 pricing. Heck, some parts are still going up a little, right? I think as you look over the last 18 months, the list of ‘bulletproof’ zipcodes has continued to shrink, but there’s still a list. I would call anyone who payed the most recent prices in those zipcodes in grave danger of the “B” scenario. If they can afford being underwater, fine…we’ll put their property tax $ to good use, but it’s not a good reason for anyone else to buy until they really do see those ’01 prices.

That should be our slogan around here: “The RBA – insist on ’01 pricing!”. Now you’ve got some homes I’d like to walk through…

I have no problems believing that a $1M house would be worth $30M in 2058. All it takes is continued depreciation of the dollar due to inflation – nothing new here.
As for absolute valuations of a 3/2 ranch, I’ll simply say this: if one of two 3/2s (more or less same house, but different neighborhood) both equally valued at $800k today was worth $200k in 1990, and the other was $50k in 1990, which is a better investment? The one that shot up more quickly?
Someone like bob would say they should both be valued the same since they’re both shacks anyway, and they’re both overpriced. I’ll venture the one that appreciated less quickly is the better long-term investment because the neighborhood has less volatility factored in.

I could be talked into ’03 pricing for the better neighborhoods. ‘Cause I want to live there and enjoy the benefits of the good neighborhood.

In the less good neighborhoods, where you’re buying as an investment, or ’cause you just don’t have the option (or desire) to be in RBA, insist on ’01. Have the cashflow model worked out, as WG sugggests. If you’re cash flow positive, AFTER taxes, you don’t have to make excuses to anybody.

WG, don’t you worry about increasing vacancy rates during a recession? Downward pressure on rents bring you into the red on some properties?

I remember after the tech bust 2 of my friends negotiated lower rents on their rental houses, but the market rents just came down all over the place. I’ve never been so lucky to have my rent reduced, but they lived right in Silicon Valley, and I’m up in the East Bay…

“Would you believe it will undergo 7%/yr appreciation for the next ten years? ”

The problem, Mr. Lewis – is that he actually does believe this. I have been trying to explain to him for months that the RBA doesn’t appreciate at a rate of 10% per year. I’ve shown him particular instances, and nomadic found stats supporting this assertion.

The problem is that he is new to high end real estate and has limited perspective.

Mr. Lewis, please stick around.

“I’ll venture the one that appreciated less quickly is the better long-term investment because the neighborhood has less volatility factored in.”

C’mon, do the math. Sure, it’s easy to get to $30M based on inflation alone, if you set inflation at 7%/yr. But do you believe RBA real estate will still do 3%/yr BETTER than that 7%/yr inflation?

Now you’re talking the fabled 10%/yr scenario. If you run those numbers (this takes 20 seconds in Excel), you get 2.59/6.72/17.45/45/26/117.39. How do you feel about the $117.39 million dollar home in 2058?

Do you get my point? Run the numbers yourself and see what these expectations really mean in the long run.

And if real estate only does a big appreciation of 10%/yr for a limited time, and then has to average out over a longer timescale to get back to reasonable levels, well you’re going to have a downturn period, or at best, a flat period while inflation ‘catches you up’ (hint, we’re in one). And you don’t want to buy high and sell low. And you don’t want to buy high, and wait an extra 5 or 10 or 15 years to finally sell higher, waiting for inflation to catch you up. It’s the double-edged sword, see? Any who argues that ‘waiting’ on the sidelines to buy makes you lose ground, because of appreciation, must be assuming appreciation at better than inflation (and better than where you’re holding your money). If they are correct, they must admit that holding a house through a downturn is bad, and only exacerbated by inflation – not only did they lose equity, but if they are stubborn and do this ‘waiting’ to sell (to avoid selling low), they will have to wait a long time, and inflation will be happening the whole time. They can’t just erase the fact they bought high. They would have done better buying lower.

It’s true $30M in 2058 won’t feel like as much money because of inflation, but just how much depends on just how much our salaries have been inflated by as well.

Let’s say the people buying the $1M home this year have $200k gross income. At 3%/yr inflation, their income is $877k. OK, wow – $877k will seem like a ‘normal’ tech couple’s income in 2058, I can get my head around that. But at 7%/yr inflation it would be $5.891 million.

If people who earn $200k now are earning $5.9 M in 2058, then yes, some of them will be $30 M homes (a bit of stretch, but with an ARM and a big downpayment – you know, $6M or so :-), they can do it).

It’s just the ratio of income to price that matters…

If you believe in 7%/yr inflation for 50 years, you should talk to an economist about what that likely means for our economy. The fraction of people whose earnings are going to go up 7%/yr in that environment is well below 1.0

But that’s just wild speculation. What matters are fundamental ratios: price to income, price to rent, appreciation rates compared to inflation rates.

It’s obvious that in the RBA these have all been high, and I argue they’ll have to come back down to more reasonable ratios. They can do it slowly or quickly, but on the long time horizon, they’ll be back. Because you can’t have the median home price at 1000x median income when it should be 3.5x. For brief periods, you can get it to 10x (read where it is now), especially with creative financing, and a lot of lying, but trust me, it’s not going to 100x.

This is indeed a cruddy part of Sunnyvale, but it isn’t the worst part. There is light rail, and there’s bus service. There are also a large number of trailer parks (excuse me, manufactured home estates). There’s no reason that manufactured homes have to be slums, but the trailer park owners cram them in as tightly as possible, contributing to that slum feeling. When your neighbor’s window is 2 feet from yours, you don’t exactly feel your home is your castle. More like your matchbox.

Did anyone notice that as the real estate agent snapped this photo (no doubt from his moving vehicle), someone was lifting the blinds, maybe to blast the agent’s BMW with a 12-gauge.

A Lewis, glad to see you getting so active today. I like the way you support your arguments, not that that’s going to cut much ice in arguing with Chuckie. Just don’t expect to make much headway, and bear in mind that being reasonable is for everyone else following along, not for him.

WG, Fristy is indeed derived from ex-US Senator (R-Tennessee) Bill Frist. Frist is known for, among other things, claiming to be able to diagnose a patient (Terry Schiavo) after viewing a videotape. He was also spectacularly wrong in that diagnosis.

The math is not precise, but a doubling time of 10 years means 7%/yr, and a doubling time of 7 years means 10%/yr. Sorry – I’m sure you all know the ‘rule of 70’…

I’ve been loose in characterizing RE’s position as being either 7%/yr or 10%/yr. That’s part of why I asked him outright (still no response). I want a number to compare against. Heck, he should tout the years when many zipcodes did 15%/yr or 20%/yr – we all saw those price hikes!

It’s just to me, a 20%/yr price meant: “look out, crazy people getting zero down loans!”, and it also meant: “I could see a year of 20% price DROPS in this neighborhood”.

Real estate is a BIG investment for people. They should work VERY hard to avoid a 20% price drop. It’s not like investing in the stock market with a modest fraction of your retirement savings that you can afford to lose.

Real estate, in my worldview, ought to be less volatile than stocks. You should get a boring, low appreciation rate on your home each year, that was sticky up AND down and not overly sensitive to brief recessions and brief periods of economic super-growth. It should hang around near inflation and be a nice place to live, or a nice place to make a modest profit off your renters while they have a decent place to live.

Let me be very frank. There are definitely times when properties in the wrong part of town will drop in value, sometimes significantly. As with any investment, there are risks. However, like WillowGlenner said, the odds are high that now is not one of those times.

Some people mistaken my position as claiming that 100% of the properties will make money 100% of the time. What they need to understand are some basic principles:

– The longer your time horizon, The lower your risk. Even the guy who bought for $600K will make money one day, but not right away.

– Location, location, location. Real estate is always local. If you bought in the right area, you would not have lost a dime this year.

– You cannot time the market. Yes, you can be hurt by timing if you’re unlucky, but the odds are high that it’s a non-factor. Just because one guy got killed in an auto accident doesn’t mean you will get killed when you drive a car.

MW2W, you don’t get rich unless you keep the price point down, thats the point. You need a mortgage that is covered by rent. Even if the initial mortgage=escrow is slightly more than rent, by $1000 or less, you can still come out even with the tax writeoffs you get, depending on how you choose to account for the property. But the whole model falls apart if you have to rent for far less than mortgage.

It is very rare in the bay area when you could have bought *anywhere* and covered the mortgage payment with rent. The late 90s were one of those times, and now. Even if the house depreciates, which I doubt will occur from these levels, you still come out ahead because you are simply paying off a mortgage with somebody else’s dime.

A Lewis, I would have thought we would have had increasing vacancy rates, but it just isn’t happening. the rental market is on fire. Will it last? I don’t know, but I like to rent mine for slightly below market rents and I never raise rents so my tenants tend to stay. I don’t have any vacancies now but will have one next Jan, at which point I intend to refi and I will post here as to what the results are of both the refi and the vacancy and rental.

A. Lewis – care to clarify this please?…they must admit that holding a house through a downturn is bad, and only exacerbated by inflation – not only did they lose equity, but if they are stubborn and do this ‘waiting’ to sell (to avoid selling low), they will have to wait a long time, and inflation will be happening the whole time.

How is holding “exacerbated by inflation?” Because the value is not appreciating (therefore zero return on initial investment) but just increasing in price due to inflation? I think that’s what you’re saying but wondered if I missed something else.

I imagine it would be a common way for owners to psych themselves into thinking they’ve done well. “At least the sales price is higher…” 😉

WillowGlenner, I’m not sure how you can say that the properties are cash flow positive. If a property rents for $2500/month, and costs 600k, and you put 20% down, then you are getting Revenue = $30,000/yr.

Am I missing something there seems to be a loss of 9.1k on costs alone, and this is not counting the cashflow that goes into the principal payments which are probably about 5.5k/yr. I thought in terms of tax advantages you could only deduct costs from your taxes up to the amount of revenues brought in, you can deduct up to 3% of the purchase price as depreciation too I believe, but it seems to take advantage of that your rent would have to be $4,000/month = 48k/yr. Doesn’t all this require patience and hope that rents would go up another 30% quickly?

I’ve been suggesting to my brother that he might want to buy another house there in Texas or rent out his based on the estimates he has given me of 210k house rents for 1700-1800/month, taxes = 3%. I have made a large Excel sheet with the expenses and revenues laid out, even expecting a 5% vacancy rate it all seems good.

what you are missing is you need the keep the price point down to 450K. What you’ll find is that houses that sell for 450K rent for slightly less than the 600K ones. I don’t even look at houses over 500K, except one exception I am watching something in San Jose for 509K but only if it goes lower.

#60 – Well I do believe (it’s no secret) that the dollar’s future isn’t bright and as a result, we should have pretty nasty inflation peaks in the next couple of decades. Inflation only needs to average 4%/year and real estate increase by 3%/year above that.
Affordability based on salary alone? I’ve posted at length about this and I continue to heavily disagree that salary alone is any good as a metric around wealthy areas, even long-term. Artificially low inventory due to prop. 13, inherited wealth, foreign wealth, foreign investment, stock wealth, etc. have a greater impact here than elsewhere and distort the conclusions you can infer just by looking at salary growth. My vision of the bay area in 2058 is that first it has shrunk due to increased water levels (bob will have to relocate), second it is no longer possible to afford a house during a single person’s lifetime of work (it already requires dual income in many instances), and third it is even more segregated than today, due to isolated pockets of wealth and ferocious restrictions on building up.

Thanks for the response, RE, I’d like it if you would answer a few of my direct questions. How about the easy yes/no ones?

I’ve already given a response to the WG statement, “now is not one of those times”, so I think you will have to respond further to that to have a point.

Everyone, I think we should be proud of RE so far today – he has admitted that SOME properties in SOME locations can SOMETIMES lose value. That was probably painful. Hey, it’s a start. See how reasonable he is? And he’s no longer guaranteeing us that an RBA investment will pay off 100% of the time.

Oh wait, that’s still possible with his use of language. It’s still implied that by staying inside the proper list of zipcodes, you can’t lose. Well, I disagree, you can lose.

And my primary point, as a recent housing bear, is NOT that prices are going to go down forever. That’s absurd. The natural tendency for our capitalist system, which I believe will remain for centuries, is for some inflation. Our policy, and the policy of the G20, is for moderate inflation in both the short and long term. In an inflationary environment, all asset classes will generally inflate, aside from some transformative effects (for instance, horses changing in value with the advent of the automobile; shelter on the other hand, will always be needed in something close to house/apartment form).

OK, so I’m not saying prices will go down forever – I’m saying they’ll go up forever. Yup, forever. Go ahead and quote me on that. The thing that’s interesting to discuss is how FAST they’ll go up in the long term, and more importantly, how fast compared to inflation.

The thing that’s fun to discuss is how fast they’ll go up in the SHORT term. But aside from all the solid short term arguments for a serious drop in house prices (which RE doesn’t really acknowledge have even happened in many areas of the BA, or even the RBA), the idea that underlies most ‘arguments’ on this blog is about real estate being a ‘good’ investment, or about it being a good time to buy.

If you want to posit that there is no acceptable alternative to buying, which sometimes I think is implied in RE’s statements, then the question of good time to buy is moot. It’s just a question of how much money you’ll make when you do buy (which is as soon as you possibly can in this philosophy). So we could sit back and smugly say “hah, those suckers who bought in ’06 will be waiting until like 2030 to make a profit, and their property taxes will have been a waste”, but that’s not important to someone who felt they had NO choice but to buy. It’s just what happened while their needs were met.

I differ strongly from this philosophy. While I definitely feel that homeownership should be the goal of almost every American, and it is a great foundation for you and your family’s financial security (especially because our tax system favors it), I absolutely do NOT feel you have no choice as an American about when and how you engage in the homeownership adventure.

There are many circumstances where it is in your best interests NOT to buy (“now is not a good time to buy in zipcode X at price Y”).

Once you accept the premise that you have a choice about buying now or having an alternative (namely, renting), you should be seriously considering at all times if your choice was correct, and laying out your criteria for changing your choice. That is, “when is it a good time to buy in zipcode X?” “what price can I afford?” “what am I looking for in a home?”. Or of course, “Can I still afford this house or should I sell? Is now a good time to sell and start renting?”, or if you’re lucky choices like “is now a good time to buy a 2nd or 3rd property?”. Obvious, obvious, obvious.

I think the hard part is when you believe you have no choice and MUST get into the housing market or you’re not doing the right thing. If you believe that, you are pushed into less favorable decisions.
When market conditions are out of whack (like they have been since 2003), you make compromises that are not in your best interests: A) living far away where you can afford it and then ruining your quality of life, as well as the environment (though we appreciate the extra spending you do) B) buying a house you don’t like, or in a neighborhood you don’t like, or C) taking on massive, risky debt you can’t afford, which is only going to be paid off if you achieve something like 3 or 5%/yr appreciation.

If you avoid that kind of forced choice, you can be left with true choice: “when should I stop making my landlord money and start building equity that is sustainable?”. That’s how I feel – I would like to be the owner of a modest home in a good neighborhood, and live in it for 50 years, making it the family hub for my extended relatives to visit and just peacefully enjoy our kids and our lives. I’m not going to do it unless I can afford the mortgage without a teaser rate and without having to refinance before that rate expires.

I also have the choice of renting quite lovely homes in nice neighborhoods, which I make into somewhat more transient hubs of family life (we have had to move because we didn’t own the place before), and build financial security in other asset classes that don’t put the family at risk and that I can afford while maintaining a decent standard of living.

You just can’t escape the math. Anybody who makes an argument about the value of homeownership is mostly talking about the financial math being in your favor if you buy. Well, I’m good at math, sorry to brag, and I’m not going to be fooled into losing money – homeownership only makes financial sense when the price of the house is right. The intangibles (no more landlord, paint it the way you like, modify it your way) have real value, but not infinite value. They are actually negotiable with landlords, though you might have to pay quite a high rent to be given permission to rip out the kitchen. And there are renting intangibles too (I don’t lose it all in an earthquake – I just rent a house with better construction – I don’t pay the plumber, I don’t pay the property tax – these are peace of mind issues with some real value).

I’d still argue I like the owner’s intangibles more than the renter’s, but again, the owner advantage is worth a modest premium in the cost to own vs. rent ratio. All things being equal, I’d pay more to own the same house I was renting (if I liked it!). How much more? Well, the math is tricky when taking the really long term view – once you have it fully paid off you really save so much vs. the rent – so you have to amortize that in somehow. It’s something like 150x monthly rent.

I wanted to make one more point: RE said “Even the guy who bought for $600K will make money one day, but not right away.”

I take this to mean that at some point the house will be worth more than $600k, so if he sells it, he will net a profit.

Well, first, he’s gotta eat 6% because of the broker, so it may take a little longer but the point is it MATTERS how far away “one day” is from today.

If you tie up a huge amount of your income and savings to buy a nice house in Menlo Park today, and 5 years from now it has not increased in value, and in the 6th year it goes up 2%, I would not call this ‘making money’. I would call this ‘losing fast against inflation’. Now you might be fine, you can afford it, you’re not underwater, and you like the house very much, but you didn’t make money according to any reasonable investor standard.

When RE talks about making money, his arguments have to stand up against investment arguments, like ‘should I have my money in stocks, bonds, CDs, or real estate? or gold? or under my mattress?’. In this world, we CARE about inflation, and we better be beating inflation or we’re losing money. So your statement about “one day” is worth nothing to the investor. You either claim you have an inflation-beating rate of return you want to put against stocks (or something) or you don’t. Stake your claim, like I asked you to.

So the annual rate of return, adjusted for inflation is what should be talked about.

Switching between nominal and real prices is cheating in this discussion, so don’t do it.

Then you need to talk about risk. Most Americans want to be in real estate (own their own home) to AVOID risk, because it ought to be a safe asset that slowly appreciates and builds equity.

Well, there is real risk in real estate. If the property value drops too far, it’s a bad thing. Because things happen like “honey, we have to move to a bigger house to fit the twins”, and “we have to move for my new job”, and then you HAVE to sell, this year, and you can’t wait for the ‘one day’ when the house is finally worth more.

Yes, I want to live in RBA, but it’s POSSIBLE I would HAVE to move out of it, and I can’t afford to have lost $200k because I bought high. Don’t you see that, RE?

That’s a very important risk to avoid, because it can lead to bankruptcy and other unfortunate events. Very bad. People don’t want that risk. If they buy high, and prices drop, they could get screwed, so they can’t afford that risk.

You gave an analogy about driving, which is fine, but I’d say buying when prices are too high by a large enough margin that it’s just obvious is like driving without a seatbelt. It’s a risk you can’t afford to take. Buying when prices are reasonable reduces that risk, and makes it acceptable. Buying when prices are low make the risk almost nil, and is an incentive to buy. No, you can’t time the market, but you can judge the prices compared to real things in the world like your own income and the rent on a similar dwelling, and if it’s out of whack, you’re at risk.

When I predict price drops, or flattening in some RBA locale like Atherton, I’m not talking about house prices heading to zero. That’s not the risk like with a stock you buy. But 10% drops in a year? Sure. Probably more like underperforming inflation and maybe staying stagnant for many years, but the RISK of big drops is very high when prices are so high.

So, advice to friends – avoid such a risk. Yes, you COULD get lucky and never be forced to sell, and maybe never see much depreciation, but could you afford it if it happened?

Instead, wait on the sidelines while that Atherton home price stays flat (and your salary keeps up with inflation), or even drops because finally someone rich HAD to move in a hurry and someone didn’t want to pay $1000/sqft…then you swoop in like the heartless vulture I am.

Have a good one…and by the way, the Dow is dropping so low, I’m getting ready to put some more money in stocks. I mean I thought it was on sale at 9,000…

Then again, I want to keep my $ liquid in case house prices in my favorite neighborhoods drop low enough I just HAVE to buy. I’d hate to leave this lovely rental home any time soon, though – it’s walking distance to the elementary school, and we love the neighbors. The landlord has given me free reign to landscape the backyard, and she’s paying for materials (I’m the labor). Not a bad deal while I wait for that ’01 pricing!

“Instead, wait on the sidelines while that Atherton home price stays flat (and your salary keeps up with inflation)”

I don’t understand this part of the post. I expect rather the opposite – inflation weakens the dollar, driving up house prices (a global commodity in the bay area) but not so much salaries (a local “commodity”).
But it seems like you expect that an Atherton house will be closer within YOUR reach while everybody is getting a higher salary…

nomadic,
From what I’ve heard the bay area house prices can recover from a moderate earthquake within 1-2 years, from a major earthquake within 5 years, so that’s more or less factored in. Who knows anyway.

Re #79 DT: Well, it’s only one scenario. Many people are pessimistic about wage increases, and if they are correct, your salary may stay flat while Atherton stays flat. Atherton may go up down or stay flat in the next 5 years. I would argue over the next 10 years it will return much more closely to a normal inflationary trendline begun from a year like 2000 (where it started out as a premium over non-RBA locales). So it has to either drop or stay flat for a while to get to my prediction.

I would strongly argue against the scenario where global inflation drives up Bay Area housing prices (in the next 5 years), because Bay Area housing BLEW AWAY global inflation for the previous 5 years, so it becomes disconnected from it for a while, while it corrects back.

Now, once BA prices return to normal, inflation adjusted levels, then I expect them to generally follow global inflation, though I think a bit more closely tied to local than you do (that’s fine – certainly debatable how global we are). It’s just that we overshot high so far already, first we have to correct.

Bay Area salaries on the other hand, have actually lagged inflation by a bit for a very long time. You know, in the useless aggregated kind of average way.

So I think that you should seem some just slightly (if we’re lucky) better than inflation salary gains in the next 5 years. Of course salaries are sticky (hard to drag up), (except for CEOs and Athletes), so I’m not predicting it’s all roses. And if unemployment increases, that tends to create downward salary pressure. So when unemployment was so low, it’s sad that many didn’t seem to benefit from upward salary pressures. I think American businesses, in a useless aggregate kind of way, have succeeded in gaining ground in the war against costs due to labor. Except in the executive suite, where it’s been utter capitulation againt the salary demands.

I’m not sure I have the guts to argue labor will make a strong comeback on the wage front during the next 5 years. Maybe?

Let’s just say that my prediction is if you can keep your RBA job, I expect your salary to appreciate faster than an RBA house. It’s just my opinion, that’s all…

#80 – Thanks for qualifying your data with context. Regarding the Atherton, I see that you’re discussing a 5 year horizon whereas I had a ~ 30 year horizon in mind.
As for salaries, for the reasons you stated and others such as increased local competition for high-pay jobs, always faster innovation cycle decade after decade, and the still to come global competition for bay area-type industries, I see them lagging yet further away from inflation, both short term and long term. In other words, I believe base salaries will represent increasingly less of a factor for bay area house prices, as wealth will be increasingly generated by other means. To get ahead, you’ll no longer need to sacrifice and buy a house early on in your life. You’ll also need to succeed in riskier ventures than a base salary offers, or to pool more than one generation’s wealth. So waiting and expecting house prices to realign with salaries in my opinion will only result in keeping you further away from the neighborhoods that you’d want to live in. In that, I know I do sound like RealEstater’s clone.

Re. #70 nomadic said: How is holding “exacerbated by inflation?” Because the value is not appreciating (therefore zero return on initial investment) but just increasing in price due to inflation?

—

What I mean is if you’re holding real estate during a time when real estate is falling, yet there is inflation on everything else.

So not only are you losing in nominal dollars (house just went from $500k to $450k, say), but in the same year, if inflation in general went up 3%, you can buy about 3% less other stuff with your proceeds if you sell it at $450k. So that exacerbates your loss.

Again I’m assuming real estate to be decoupled from inflation elsewhere in the economy. Sorry if I didn’t make that clear.

The point was emphasize how the housing bulls often brush inflation under the rug in discussing value, and ROI. Not only do they fail to account for it during good real estate markets (claiming “we saw 5% appreciation last year!”, without making the caveat, “well, inflation was 4% that year, so we only beat inflation by 1%”), but they don’t add it in to the risk of holding real estate during a downturn: “my money was stuck in a home that depreciated 5% last year” AND “after the 4% inflation, my loss was more like 9% – if I had put the money in a 4% CD, at least I would have broken even”.

WG,
Once again your math doesn’t add up. The mortgage on a 400k house is around $2,500. That doesn’t include property taxes or repairs. At BEST you might be barely breaking even, and seeing this house I seriously doubt you could get $2,500 a month. Secondly, if the economy keeps going the way it appears to be going, then I think you had better count on rents dropping. You might have gotten a little taste of some of that nice Web 2.0 bubble, but those days are gone, and I wouldn’t be surprised if mediocre houses like these will start renting for under $1,500. Lastly, I doubt that 400k charmer you bought is gaining any value, and I wouldn’t be surprised if it actually loses more value.

Ad A Lewis… THANK YOU for talking some sense on here. Perhaps many here aren’t catching your drift, but indeed- inflation and real estate appreciation and depreciation cycles are often ignored or forgotten. The fact of the matter is that after a housing bubble, there tends to be an often equally long depreciation/flattening cycle afterwards. Even if prices remain flat, count the annual 3-4% inflation to eat away at the value. This is how the last overall 15-20% depreciation in values occurred in the 1990-1997 housing recession.This correction has already been more severe and in my opinion with the housing collapse now having turned into an overall economic recession will eat away at values even further. Yes- prices will eventually go back up.

I look at it from a very simple equation. That would be how much do you spend on a monthly basis, how much do you save, and how much do you end up with at the end of the month? Even with prices falling, what I save and what I spend is drastically more and less than if I bought even the cheapest home in my neighborhood… and I live in the ‘horrible’ East bay and not the glorious RBA.

One more thing. Buying a home in the BA is almost always a risk from the get-go. We’re talking the house you live in. Seeing as how that as of now, even a typical ole’ boring house where I live in Alameda is STILL hovering around 500-550k, that’s still not what I’d call close to being reasonable, and in fact, by purchasing such an expensive home, you should be making in and around 150-200k per year annual salary. That’s way the hell more than most people in this area make, and even if they did, if one person in the household loses a job, then the risk to their finances is immediate and severe with the very real potential for losing the home. Then again, people here have an unhealthy relationship to housing. But even so, it shows a clear picture that people particularly in this area take astronomical risks just to have a home they can “own” versus rent.

Ordinarily- as in where my parents live in Tennessee, a mortgage payment is sort of like paying the gas or electric bill… a necessary nuisance until the home is paid for. In other words, like paying for a car. Seldom does it take on the precious meaning it does out here in California. But nevertheless, the risk level back home is drastically less, which in turn means less families place themselves in volatile situations.

This leads me to believe that the average person in the BA probably places their investment futures heavily on their houses versus retirement and 401k’s… hence the amount of scoffing I get here from those who still think housing is king as far as investments goes. As such, the house in the BA is the primary retirement and investment vehicle here. Thus it explains the intense obsession residents here have for its value. It MUST perform or else they lose their nest egg. That puts unusual pressure on a single asset. That simply makes zero financial sense.

bob – You have an unhealthy relationship to comments then (to paraphrase you)

“But how’s that relevant to real estate versus stocks? Are you on crack?”
These are questions, not comments. You asked, I responded. I asked back, you didn’t do the courtesy to respond. I know for a fact they civility in Tennessee, did you skip class?

#81 DreamT: I think you make some very valids points about why BA or RBA housing should be at a premium compared to other housing, specifically:

“Artificially low inventory due to prop. 13, inherited wealth, foreign wealth, foreign investment, stock wealth, etc. have a greater impact here than elsewhere and distort the conclusions you can infer just by looking at salary growth. My vision of the bay area in 2058 is that ……it is even more segregated than today, due to isolated pockets of wealth and ferocious restrictions on building up.”

But there are competing factors – first of all, many parts of the globe (including rich countries like Japan, UK, France, Germany, where I assume some of your foreign investment argument comes from) are having, or about to have worse economic problems than us. This should lower foreign wealth and investment to SOME extent. Stock wealth and inherited wealth around the US (and elsewhere) are taking a big big hit, so I expect that to lower demand SOMEWHAT (when it was due to that).

I think those are more like minor players (10-20% of demand?) in the pie of demand for RBA homes. I think the biggest factor is a fuzzy kind of “Look, we all just want a cute 3 or 4bd house with a yard in a nice neighborhood, with walkable shops & restaurants, good public schools, and good weather, and close to both our jobs”. I mean that’s huge, right? And the condo discount is larger in the Bay Area than a city like New York, because we still have a large fraction of single family homes.

That ‘fuzzy’ desire reached a fever pitch, and doesn’t look like it’s going away anytime soon – I mean, who doesn’t want that? Even some of the folks without kids like living in the cute family neighborhood, instead of the faster paced city life of downtown SF.

So there’s definitely lots of demand for your Cupertino cute-as-a-button sunny rancher. Of course there is. And I think the draw is strongest for domestic demand – I think foreigners wanting to live in a ‘global city’ are buying $2.5M view condos in beautiful high rises in SF and NY. I mean, SOME of them might buy in Menlo Park, but it’s not exactly a global destination, you know? If I were that rich, I’d probably buy a beach house somewhere – maybe more like Tiburon than the Peninsula. The whole boating/yachting crowd is not really drawn to the Peninsula, and better explains demand elsewhere (Newport Beach/Harbor, for example).

You’re right that there should be a gap, compared to flyover country, in the correlation to salary growth, but it sure isn’t NO correlation. Plenty of ‘normal’, domestic, mortgage paid from earned income folks fill out the ranks of homeownership in Santa Clara County.

So I firmly believe that you can’t just keep outpacing inflation and price ALL of them out, leaving only a few princes from Saudi Arabia to own every last 3BD ranch home on the Peninsula by 2058. I don’t see it (but wow, I guess it’s possible – maybe RE just slowly buys them all up and we just pay him rent in the end…)

And salary growth is only one of the benchmarks I cited – the ratio to rent is quite important: if you keep increasing it, more people will choose to rent, and eventually demand will fall – they have a choice.

Also critical is the long term appreciation rates.
I totally grant you an initial price premium for RBA vs. other areas, but that gap should not be able to increase to infinity.

Take the same nice 3BD home – plop it down in a good RBA neighborhood, it’s $1.0M, move it 30 blocks in the wrong direction it’s $700k. Call it a 30% premium. Argue it’s valid because of the schools, crime, etc.

But in 20 years, in a SANE market, both houses should increase near inflation, and the gap should stay around 30%.

What’s been happening is that the gaps are widening, as a PERCENTAGE (not just the dollar value), at an accelerating rate, and it’s unsustainable. You just can’t get to a future when a 3BD home in RBA costs 100x the mediocre part of Sunnyvale. It’s not a mansion – just a 3BD home.

And those ratios apply to all the other steps on the real estate desirability ladder – into San Jose, East Palo Alto, Fremont, Stockton, Salinas, Utah and Minnesota. People have choice. They have some level of mobility, and if you just make the gaps insanely high, people WILL move. Also, if housing cost so much that none of the working people can buy it, then companies can’t get workers as easily, and they might move to a place where mediocre software engineers don’t demand $250k just to afford a decent 3BD home (Austin, TX, anyone?) near the office. Move enough tech companies away, and you reduce desirability for many.

OK, silly – but I’m just saying what looks like exciting growth is just the path to unsustainability – and you can come back to a normal, workable gap in valuation between RBA and flyover country in a slow easy way, or a quick drop, or a long stagnation, but you have to come back – because you can’t sell a house for infinity dollars.

A. Lewis – Two points and one correction.
First, Newport Beach / San Diego despite a more attractive location experienced a harsher crash than the ‘RBA’, possibly because more of it was fueled by stocks rather than salary + bonus, but also because the industry there includes a lot of real estate-derived businesses. When I say foreigner, I mean the parents from China or India pooling a couple of generations’ wealth to beat the competition when buying in Cupertino or right here in my Santa Clara neighborhood, or a foreign-born software engineer who just got an inheritance.
Second, percentage-wise, non-RBA places like East San Jose or Stockton experienced a much higher increase than so-called RBA places. In fact, the neighborhoods that have held the most steady are those that were already perceived as overvalued many years ago, because percentage-wise they really didn’t bubble much in comparison. So the least unsustainable growth in retrospect was in the RBA, and unlike what you stated, the gap was shrinking during the bubble, not widening – with East Palo Alto and East San Jose prices crashing, the gap is returning to what it was.
Finally, ratio to rent – much discussed here. When buying is no more expensive than renting, it’s an incentive to buy (what happened to us in 2001). The converse isn’t as true, but I cannot tell to what extent. I only I suspect that this correlation, while real, will decrease long-term rather than return to normal, due to the anomalies of the BA homeownership market and transitory nature of many (F1, J1 and H1) workers.

On the plus side, we still have population growth which will continue to feed demand over time to stabilize things somewhat. Europe is going to be reeling as their housing market crumbles. Their bubble was fed by looser lending, deregulation AND the addition of more nations to the EU. (The poorer nations with less available credit could suddenly access low interest rates in other nations.)

Prices in Spain fell 32% in the first quarter of 2007. In 2006 the country added 700,000 new housing units! More than the UK, Germany and France combined. The continent’s birthrate is 1.5 – who’s going to buy Grandma’s house when she passes?

Just goes to show, even when they aren’t making anymore land, there is still inherent risk in real estate.

So according to RE, 3-10% job cuts in Silicon Valley is just merely a “bump” that won’t stop the rise of real estate prices. Wow, how “logical”

From the NY Times:

The warnings from the large semiconductor players mean that consumer electronics and computer companies will probably have a difficult holiday season. Best Buy, the leading electronics retailer, offered its own bleak forecast Wednesday, and its rival, Circuit City Stores, filed for bankruptcy protection Monday.

“People don’t have any money left to buy cool gadgets,” said Trip Chowdhry, an analyst at Global Equities Research, adding that the housing debacle has drained consumer budgets.

In the next few months, Mr. Chowdhry expects a spate of job cuts in Silicon Valley.

“It will be almost across the board in the region,” he said. “Three percent to 10 percent of the people will get laid off.”

DreamT, I don’t see bay area real estate going up like you do either. In fact, I think that as time goes on it will come to be more in line with the salaries in the area.

We’re all speculating, but I look at the same factors and think they would indicate that it would return to the normal real estate rate of return (~6%). To start there’s the increased globalization you allude to above. Wouldn’t that indicate to you that proximity to jobs will become less important?

Also, there is the prob 13 issue. It makes it exceedingly difficult for people to pay the property taxes on homes that have really high sale prices. Think of the people who paid these rediculous prices, are underwater. The high tax will make it even more difficult for them to stay in the long run.

If you’re right (and I think you may be) about an increasingly segregated community, this will increase crime and make the BA a worse place to live.

The only thing you mention that would indicate (to me) is more ferocious restrictions on building. Obviously this will reduce the supply.

Eventually the “hoist up by its own bootstraps” Bay Area will have to face reality, because, let’s face it:

What are you talking about? This is a special place. With special weather. And special prices. This is the best place to live on earth. I love it so much here I’m going to buy another house just so I can be sure I can live here twice.

First, Newport Beach / San Diego despite a more attractive location experienced a harsher crash than the ‘RBA’, possibly because more of it was fueled by stocks rather than salary + bonus, but also because the industry there includes a lot of real estate-derived businesses.
—————-

Well, still there are a few blocks of Newport Beach and a few neighborhoods in San Diego which are faring better than rest and residents/agents are still arguing that they are immune to housing market downturn. You know, those are just like RBA – Real Newport Beach and Real San Diego. There is

————When I say foreigner, I mean the parents from China or India pooling a couple of generations’ wealth to beat the competition when buying in Cupertino or right here in my Santa Clara neighborhood, or a foreign-born software engineer who just got an inheritance.
————-

Interesting. I don’t know about China, but I haven’t seen a single engineer from India who came from family with “couple of generations’ wealth” that can make a dent RBA housing market. Most of them came from very middle class families, who came here for better opportunities [keep in mind India average person makes $500 a year; reference].
When someone converts Indian Rupee to USD (1USD=50 rupee), it does not take you anywhere.

But of course, there are rich families in India. But they hardly need to come here and live in Cupertino – where they need to water their own lawns, do their laundry/dishes and drop their kids to school. They have servants and chauffeurs do all these in India.

“To start there’s the increased globalization you allude to above. Wouldn’t that indicate to you that proximity to jobs will become less important?”

Not necessarily. Recently I’ve observed the opposite, more and more explicitly stated by companies. I meant globalization as a threat to companies and local industries rather than a threat to specific jobs.

Pralay – The couple of households in my street who fit this profile are the only ones not watering their own lawns – they hire help to do this. I guess old habits die hard. 😛 That said, they’re in management, so they’re not among the engineers you were referring to.

Rather I’m saying that bloated companies go out of business due to global competition, therefore the silicon valley must perpetuate the virtuous circle of remaining the most innovating place on Earth to survive, which it continues to do as long as you can start a business and find local world-class talent overnight (bonus points if the talent comes with VC connections).
For all the negativity about the area, the SV is still more valuable for its intellectual and financing potential than for its current hard assets. When that changes, is when I can see local real estate doomed for good. Until then, companies can close in droves, but new ones will emerge.

I’ve always dreamed to live in Ukiah. My wife would make friends with the Thai lady owner of the local Asian restaurant, and they’d form a club – the club of the only two Asians in Ukiah! (if you live in Ukiah, this post was meant to be sarcastic, please don’t shoot)

Come on. All these posts are well and good, but can we get back to the real point here?

Real estate doubles in value every 10 years. This is a fact.

If you don’t believe this, come join the party. We’ve got enough kool aid for you and your friends. The party’s been going on since 2001 – isn’t it time you joined too?
——–

Anon,
Your comment bought fresh air and sanity in this stuffy room full of bubble heads. Once you guy home in RBA you are all set to become millionaire soon.

Rest of the guys,
Let’s cut to the chase. In one side one guy Lewis who does not even own a home in RBA, whom knows what kind of wife he has, who knows what kind of job he has, who knows what kind of kids he has.

In another side, a guy with multi-*** 24×7 IT infrastructure mega-project, prestigious zipcode, trophy wife, huge equity, well-rounded kids who are all set to go Stanford, locked in raises and bonuses.

Which side do you want to be? Don’t believe all the maths, reasoning, stats from a guy who are talking 10,000 feet above from market, never been to an open house in RBA and does not own a home. Listen to the guy who has “a firm grip on the pulse of the market”. His math could be weak, but his predictions are always right. His logics could be absurd, but his conclusions are correct. He may sound like a used car salesmanreal estate agent, but he is a “management class average hitech guy”.

Keep in mind, all the angry renters will keep talking and post long comments here, while you being homeowner in RBA will be enjoying the equity.

I should qualify my last post. Certain, um, non-worker-bees don’t like to get their hands dirty or don’t know how to solder, but the engineers I know like to get back to their roots once in awhile and debug. And experiment, rather than debate theories until they’re blue in the face.

Pralay – The couple of households in my street who fit this profile are the only ones not watering their own lawns – they hire help to do this. I guess old habits die hard. 😛 That said, they’re in management, so they’re not among the engineers you were referring to.
—–

Do you know if they are pulling wealth from couple of generations or they made money here in their own?

I heard that there are lot more people with cash in sidelines in Ukiah than RBA. Because its Mendocino county. Many harvests special weeds and sell it to underground market. So if one guy goes to car dealer and pays the full value of car with cash, dealer don’t get surprised or alarmed. You know it’s business as usual.

With the various long winded posts above, I see some familiar patterns:

– Herd behavior. When the economy turns sour, everyone thinks in the same direction — fear is king.
– Seeing the trees without seeing the forest. Lots of DUI macro and micro economic analysis, based on all kinds of assumptions.

It’s actually far more important to understand the nature of real estate investment itself, in the context of high level trends. Economic analysis is not reliable, even when done by economists.

Just summarizing a few key points:

1. With real estate investment, the government is on your side: They will give you tax rewards, and it’s always in their interest to see a rising market rather than a falling one.
2. With real estate investment, time is on your side, Time will reduce your risk, and time will make you rich.
3. With real estate investment, inflation is on your side. This is self-explanatory.
4. With real estate investment, recession is on your side. Even when you lose your job, the rent checks are still coming, and people are more willing than ever to buy you that flat screen TV each month.
5. With real estate investment in the Bay Area, demographics trend is on your side. There’s never ending inflow of immigrants.
6. With real estate investment in the Bay Area, geography is on your side. The land-locked area is permanently supply constrained.

The odds are high that you can make good money by owning real estate. You don’t have to be smart, just don’t be ignorent … or super unlucky.

Don’t worry, he will come back and say that he just finished the insurance paperwork for the luxury boat he bought yesterday. You know, it’s always great to live in prestigious zipcode, enjoy equity and having greater purchasing power. Can a angry renter do that?

In reality he is just praying for this thread to die ASAP (and that annoying Lewis too, with his math skills) so that he can start his as usual comments – “Guys, DOW is up, bailout is successful, gas price is down, we are all clear to take off. There is no downturn in RBA. It’s always great time to buy home in RBA. Don’t listen to angry renters. Don’t get price out forever.”

“Guys, DOW is up, bailout is successful, gas price is down, we are all clear to take off. There is no downturn in RBA. It’s always great time to buy home in RBA. Don’t listen to angry renters. Don’t get price out forever.”

A. Lewis says,
>>You believe that because of supply and demand, and location, and other fundamentals, that prices in the best RBA zipcodes will, on the long run, increase at better than inflation, right?

I cannot predict the future inflation rate. This is a question for God.

>>Would you believe it will undergo 7%/yr appreciation for the next ten years?

Which part of “on the average” did you not understand? It may or may not double in the next 10 years, but if you hold it long term, you will see that kind of performance on the average.

>>That would increase it’s value to 1.97 million in 2018. And to 3.87M in 2028, and to 7.61M in 2038, 14.97M in 2048, and 29.36M in 2058.
>>Sorry, I don’t believe in the $29.36 million fantasy.

When a home in Palo Alto could be bought for $20K in 1950, would you believe it at the time if I told you that home can sell for $2M today? It’s not a fantasy if it already happened.

Unlike you, I don’t have a history of evading questions. What “direct question” did I miss?

I’m still waiting for your answer regarding whether you’re in Cherry Chase. As I mentioned, I just don’t see the for sale signs outside of Cherry Chase. Most of the Cherry Chase inventory is along 85, Hollenbeck, or Fremont Ave. That’s the only reason it has inventory.

When a home in Palo Alto could be bought for $20K in 1950, would you believe it at the time if I told you that home can sell for $2M today? It’s not a fantasy if it already happened.
—–

And that means it will happen again. It may sound like like extrapolation, but it’s not. It’s Chuckie-Truth.
Don’t worry, every condition that happen from 1950 will repeat again – including inflation, cherry fields turning hitech offices (and that means hitech buildings will disppear soon, the whole bay area will become cherry fields again and then history will repeat itself).

“Do you know if they are pulling wealth from couple of generations or they made money here in their own?”
In general? A bit of doubt I’m sure. Specifically the ones I observed? When you see three generations moving in together, either there’s a very generous head of the household, or there’s been some pooled money for a downpayment. But what do I know, my family’s on another continent anyway.

For someone like you who has never been in the game, the odds doesn’t matter. It’s like the joke where a man complains to God he never wins the lottery. God asked him: Did you ever buy a lottery ticket?

For someone like you who has never been in the game, the odds doesn’t matter. It’s like the joke where a man complains to God he never wins the lottery. God asked him: Did you ever buy a lottery ticket?
—–

Ok, based on your earlier post and this one, let me frame the story –

God: Buy lottery ticket. Odds are very high. Unless you are super-unlikcy you will win.
Pralay: What are the odds? Give me some number.
God: Buy a ticket. Then you will know.
Pralay: Give me some number.
God: Unless you are in the game you will never know. Buy a lottery ticket now.

Most homes doubled in the last 10 years. I don’t recall seeing many cherry fields in the Bay Area in the past 10 years.
——

Oh, yes I forgot last 10 years. History will repeat itself means every condition must be fulfilled – including relaxed lending standard, NINJA loans, agents and brokers commenting “oh, just refinance”, people’s perception that real estate is a great investment.

>>Don’t worry, every condition that happen from 1950 will repeat again – including inflation, cherry fields turning hitech offices
>>Oh, yes I forgot last 10 years. History will repeat itself means every condition must be fulfilled – including relaxed lending standard, NINJA loans, agents and brokers commenting “oh, just refinance”, people’s perception that real estate is a great investment.

With all the things that happened over the course of time, what makes you think life will come to a stand still now?

#142 – Nice one. It looks so much like a set-up, and his spelling errors aren’t so frequent, that my little finger tells me the spelling error was purposeful.
Kinda like bob framing me on the “worthwhile” although I’m loathe to grant him that much credit. That’s the beauty of paranoia: it prettifies people.

“With all the things that happened over the course of time, what makes you think life will come to a stand still now?”

It’s called History Inertia. It’s that obscure revisionist study of History that explains how after the invention of cars and planes and the economic boom that went along, World War I could not possibly have happen. Or that the roaring 20s was followed by the glorious 30s. Or that interest rates stayed below 10% through the 80s. Or that your house purchase will double in value ten years hence. They may not teach you that in your school, but that’s only because you don’t live in Palo Alto and therefore don’t know any better.

DreamT,
I was taught to be objective, and frankly I like the idea of having the freedom to choose not to waste my time replying to pointless posts. Take it for what you want. I don’t care.

In response to A Lewis,
Once again you’ve hit the nail on the head on numerous points. Indeed- the level of price appreciation in the BA was and is still unsustainable. The second point you hit on was the new phenomena of what many call the future ” Brain drain”. I’m 31 years old. Most of my friends are around that same age. Of all of the people I know in this age bracket, none have any plans to stay here long term. As is such now, salaries in this area are higher partially to compensate for the higher cost of living. The difference between here and many other parts of the country might as well be the difference between a 3rd world country and a 1st world country. While these high salaries are barely enough to enable a family to purchase even a modest home here, it doesn’t take a genius to realize that it would be more than easy to simply work, save, then move away. That’s precisely what most of my friends and I are doing.

If you look at cities like Austin, Atlanta, and so on, not only are they the fastest growing cities, but they’re also the youngest cities in the US. What do you get when you have cities full of transplanted, young, ambitious people? You get innovative companies and products. This will pose as a serious problem for places like the BA where people simply moved away in droves as the population grew older.

At BEST you might be barely breaking even, and seeing this house I seriously doubt you could get $2,500 a month. if the economy keeps going the way it appears to be going, then I think you had better count on rents dropping. You might have gotten a little taste of some of that nice Web 2.0 bubble, but those days are gone, and I wouldn’t be surprised if mediocre houses like these will start renting for under $1,500. Lastly, I doubt that 400k charmer you bought is gaining any value, and I wouldn’t be surprised if it actually loses more value.

LOL! And all of this from ONE PARAGRAPH! Where to begin, oh where to begin.

First of all bob, I always just barely break even on new houses I buy. Sometimes I am even cash flow negative for a few hundred a month. That is exactly the winning formula for real estate investing, you clearly don’t understand that. You do realize that your landlords in Alameda are paying off THEIR MORTGAGE with your rent every month? At the end of 15 or 30 years they own a 500K house and you have- what exactly?

As far as rents declining to $1500, that is where they were in 1990. I was renting for $1650 in 1992. Remember what salaries were in 1992? About 60K for professionals, they have doubled since then.

WG,
My parents own two rentals. Both are cash flow positive.That’s how its SUPPOSED to work. If you’re not flowing positive, then you’re only counting on speculative appreciation, which I can almost guarantee will not be coming back anytime soon. You get an “F” in real estate investing.

Secondly, I could give a flying Fu(k that my landlord is paying off his mortgage. He gets very little of my money, its a nice house, and in the end he will get the house… but I get to retire early complete with a house on a large piece of land with what I’ve saved.I’m pretty much there already. Its not a simpleton equation where I- the schmuck of a renter gets screwed over. Quite the opposite. At least I’m actually earning money versus just breaking even.

RE, the avg age of te BA is actually getting older and older. That doesn’t meld with your assessment.

Sorry I had to stop posting around 10pm last night – stopped to sleep, and now I’m at work and it’s a busy day, but there’s oh so much juicy stuff to respond to.

I especially want to delve into the interesting stuff DreamT brought up in post #91. RE’s Post #117 is priceless, I may frame it.

Just to encourage you to stay engaged, RE, I want to show you where we agree. Your points 1 & 6 are totally correct – tax incentives and geography are definitely on the side of increased profits from real estate. I made those points myself in my long-winded posts.

And you’re right, there, too – I’m long winded. My friends chide me about it, but we seem to get along fine. I just like to say all the relevant details, and give caveats to my declarative statements to keep them valid, and I have a lot to say…I still think it’s a quick read.

But your points #2,3,4 I strongly disagree with you on. And my posts make direct points contradicting your conclusions. In a falling real estate market, time, inflation and recession are NOT your friends as a homeowner.

Let’s make a caveat on time – it’s certainly true that being patient and riding out a rough patch is the wise course for a long term real estate investor. As a super-smart investor, since you bought low, don’t sell low during a downturn! Wait until things turn up and sell high (if you sell at all).

But time is a crucial factor in evaluating any investment, and you can’t get away with saying “I made a 10% profit”, without saying over what time period you made it. If it took you 5 years, I submit you made a weak or even bad investment, because you were behind inflation, so you should have had it in a bank CD instead (5 years at 3% = 16%).

But forget that, what the heck do you even mean by ‘time is on your side’? Could you spell it out for us?

You may have noticed I use a lot of specific examples to explain my thinking.

Please use a hypothetical example that shows where time is on your side to support your assertion. I can think of about 5 good ones to support your argument, but I just want to hear them from you, to make sure we’re on the same page.

I would restate your #2 as “sometimes time is on your side, sometimes it’s not – depends on the market conditions, and when you bought/sold/stayed on the sidelines”.

And I’m afraid I really need more of an explanation from you of how inflation helps – when I have explicitly stated (in response to nomadic) that I see the real estate market as currently decoupled from general inflation – so when your house is losing value, and inflation is raising the prices of everything else, you lose as a homeowner, and you do not lose nearly so much as a renter. Your point is not made yet. Please elaborate if you want to convince anyone.

Let’s go back to #2, time though. Because I have an example where time is on the renter’s side.

Let’s say the first time I had enough income to begin considering Bay Area home purchase was October 2003 (oops – this is the truth!). Let’s say there were two versions of me. Version “A” does not buy in 2003. Version “B” does.

A: Keeps $20k in savings account, or 12 month or less CDs, earning 2-5% interest during the 03-08 periods.

B: Borrows approximately $100k from family and adds $20k of savings to put $120kto put 20% down on a $600k BA home which is a modest 3BD.

By about early 2007, “B” is pretty happy about the home value. $600k home now worth $800k. “B” is however terribly cash poor, and has sacrificed everything to make the house payment, taxes, and insurance.

A is sad about feeling more priced out then ever. But A has no debt. A has increased savings to $50k, and been living in 2 very nice rental homes, both larger than the home he could have bought, in better neighborhoods.

Come late 2008, A is starting to feel better about home prices, because they’ve come down to about $650k on that same home, and they look headed further down. He’s lucky he stayed out of the stock market (luck is a factor…) with his down payment money (his retirement account took a hit, but he can wait 35 years for that to bounce back). Adjusting that $600k 2003 house for 3% inflation over 5 years = $696k, so it’s like got ahead because of inflation on the home price – it’s below the inflationary rate, and it’s headed down in 2009!

If the home price drops to $600k or lower, his waiting will have paid off big time. Time was on “A”‘s side.

Even if the home price holds steady at $650k, “B” has not done that great. He’s been making less than 2% appreciation per year, and has pretty substantial carrying costs.

If it drops below $600k, he’s not underwater on his mortgage (he put 20% down, remember), but he’s basically made a very weak investment.

OK, so that’s my example of when time is not always on the owner’s side.

You may notice it’s actually a weak difference in the two situations. It’s not stark. That’s because 2003 prices weren’t so bad. Buying in 2003 was not that bad a decision, it was only a ‘weak investment’ over this period, not a ‘bad investment’. The point is even then prices had climbed too high.

Buying in 2006 or 2007 would have been a disaster for “A” (which is me). Buying when that house hits ’03 pricing is probably quite reasonable – it’s a nice neighborhood, how low do I expect prices to get?

MAYBE ’01 if the recession is that all bad. I may wait for ’01 pricing, but I might not ever see it.

Of course, each year that inflation continues at 3 or 4%, and my salary increases with it (or better than it if I can manage promotions and raises), I can gain even if the house stays stuck at ’07 pricing for years without ever going down. It just becomes a smaller multiple of my income until I can afford it and get approved for that Jumbo loan – maybe in 2012.

Homeownership is a big, important, decision, and I should have my finances right before I jump in. If I have to wait until 2012 for the numbers to make sense, it’ll be hard waiting, but when I finally have that well-priced house on stable financing that I can afford in a neighborhood I like, I’ll be very happy about it.

Now let me get back to work, and then later today enjoy working in my rental house garden out back, while I save money for my down payment.

And DreamT, I’ll try to get back to you – I again think you make some great points about where the money and resources come from to afford and sustain expensive housing, and I especially want to talk about how the high end has been more sustainable than the middle and low end in terms of growth rates – because you’re absolutely right.

“My parents own two rentals. Both are cash flow positive.That’s how its SUPPOSED to work. If you’re not flowing positive, then you’re only counting on speculative appreciation, which I can almost guarantee will not be coming back anytime soon. You get an “F” in real estate investing.”

Bobert, this is absolutely wrong. I’m sorry, but you don’t need to be cash flow positive to make an investment proiperty wortwhile. Sure, it helps, but it is not a requirement, and certainly not reason for a real estate investment to fail.

DreamT,
Do you realize that every minute that you spend replying to my posts is basically money that comes out of my pocket? That’s right, since you seem pleased to take your leisurely time finding a new job, we who work are essentially paying our taxes to keep you afloat. So get off the forum and get a job. Thank you.

Anon,
I disagree wholeheartedly. A business is based on immediate income? You wouldn’t start a company making furniture, lamps, or shoes with the plan of barely breaking even or even losing a profit, assuming that people would buy in the future would you? Same goes for housing. That the rental market in the BA hasn’t been cash flow positive for years doesn’t mean its acceptable or correct either. It goes right along with the overall overpriced housing market here in general.

My parents, Grandparents, and Uncle all had/have rental property. they ALL cash flowed positive. If I were to tell them I bought a house and it wasn’t making money from the rent… they would think I was a total moron. Sprinkling Bay Area pixie dust all over it wouldn’t change their minds either.

Re #157: I think what RE meant about “inflation being on your side” is that real estate, like other hard assets, is not susceptible to loss of value due to inflation. On this I agree with him, with one proviso: it must be reasonably priced to begin with. I would interpret your example of housing remaining stagnant while inflation marches on as an adjustment in the market (downward, in terms of inflation-adjusted value) toward more sensible prices, and not as sensitivity to inflation.

” Anon,
I disagree wholeheartedly. A business is based on immediate income? You wouldn’t start a company making furniture, lamps, or shoes with the plan of barely breaking even or even losing a profit, assuming that people would buy in the future would you? Same goes for housing. That the rental market in the BA hasn’t been cash flow positive for years doesn’t mean its acceptable or correct either. It goes right along with the overall overpriced housing market here in general.”

Bob, don’t view it as a business. View it as a savings account. In the case where it is cash flow negative, it is forced savings on the part of the owner, supplemented by the renter. Think about a 401k. Is that a good business? No – the account owner puts money into it every month. Often one’s employer puts money in as well. The account owner is the home owner, and the employer is the renter. In both cases, it is forced savings on the part of the account owner.

I’m not saying its always a good idea – just that you are missing part of the equation.

bob – Don’t you read the posts? I signed a contract last week. But even if I didn’t, why are you so snide? What’s with the constant negativity, bob? Even anon, a model of patience and commiseration, is giving up on you.
Why did you think it a good idea to poke fun earlier in this thread at unemployed people who struggle financially, for example? And who elected you moderator to decide who should post here or not?
Originally you merely showed some reasoning shortcomings and a tendency to arrogant, sweeping judgments. But as of late it’s a nasty, negative attitude you’re putting on display.

I’ll try to address a bit of your paranoia as well, bob. It does not matter how many unemployed people are out there, or what they do or their time, it’s still the same amount that goes out of your paycheck. So urging someone to find a job will not result in eventually decreasing “money that comes out of [your] pocket”.
I sincerely hope that by the time my son is 4 years old, he understand such concepts on his own without being explained.

You wouldn’t start a company making furniture, lamps, or shoes with the plan of barely breaking even or even losing a profit, assuming that people would buy in the future would you?

Hey bob, did you really say this? Do you think that no business is financially viable unless it is cash flow positive from DAY ONE? The entire venture capital industry, which houses armies of people a lot smarter and richer than us, here, would disagree with you.

Note that when I buy a property to rent it and it is cash flow negative, my assumption in all cases is that I will be cash flow positive within a few years. That is the sole reason I didn’t buy *anything* between 2003-2007 for rental. I didn’t buy- I thought houses were too high, and I was completely unwilling to get into a bidding war. I did buy my personal residence in 2006 but that was a special case, and even then I am unable to get a property tax reduction at least thus far so I am probably ok even with that (and I am very glad I liquidated the stocks I held, then, for the house). I didn’t buy in 01-02 because I couldn’t due to cash flow constraints, but I would have if I could. I am buying like a bat out of hell now for rentals but I am looking for 2001 pricing when I do. Even at 2001 pricing sometimes you cannot quite cover the mortgage with rent, but you are damn close. Thats good enough for me, for the bay area. It doesn’t get too much better than this.

anon – you’ve gotta admit, you’re more patient with the twit than just about anybody else on this forum. You even reason out lout in your replies, with explicit questions and answers – I know you would post drawings if you could. Isn’t this commiseration?

Perhaps, but I think I have more schaudenfraud built up than everyone here combined.

It’s just not directed towards people like bob. It’s directoed towards people who scam, people who are dishonest, people who propagate bad reasoning/lies, and people who live beyond their means because they view themselves entitled.

WG,
Again, your plan is based entirely on speculation.That isn’t a business plan.You ASSUME therefor you’re merely guessing.Did you assume that the economy was going to crater? I bet you didn’t. I would put money on it that you were just like all the other RE nuts I’ve met who were drunk on recent RE price appreciation and just “knew” that the good ole’ days would surely be coming back rather quickly as soon as all those messy foreclosures cleared the air. But again- you probably didn’t count on the recession that followed.Let me ask you something. Would you be just as happy if these properties you bought wind up not gaining any sort of significant value in the next 10 years? Sound crazy? Not given how long “real” recessions like the one we’re starting tend to last. It isn’t all unreasonable to assume this. So let’s say that it takes another 5 years for the cycle to bottom out, and another 5 before the value starts escalating on par with what it did from 2002-2006. If so… would you be as content? But I will commend you on your choices because you’re obviously a risk taker. I myself wouldn’t have made those choices. Then again, I like to have savings and concrete finances at hand.

DreamT… Let me tell you something. I worked at a crappy job for years. It always sucked to see my pay stubs and see just how much of it was gobbled away on taxes and so forth- much of it going for things like unemployment ans so on. 1/3rd of my measly paycheck automatically down the drain. Additionally, the pay was such that if I were to have been unemployed, the amount I would’ve gotten would have been insufficient. There are lots of people in that boat still, who MUST work or be in trouble. Those who Must have a job even if they become unemployed. I’ve only been unemployed once. It took me less than 2 weeks to find a new job because the entire time I was unemployed, I couldn’t help but think about others with less options who were still working in diners, factories, and retail stores working their asses off so I could have the privelage of being unemployed. So again- why are you here? Oh… I know… you’re working on some sort of “invention” or something with a commission. How cute!

“I would put money on it that you were just like all the other RE nuts I’ve met who were drunk on recent RE price appreciation and just “knew” that the good ole’ days would surely be coming back rather quickly as soon as all those messy foreclosures cleared the air.”

WG has made no indications of this. RE has, but WG has not. Aside from his mis statement to me stating that I was “heavily biased,” I have seen him remain mostly objective in his analysis.

“Would you be just as happy if these properties you bought wind up not gaining any sort of significant value in the next 10 years?”

If he remains cash flow positive, this makes no difference. Even if he loses money, he still had the mortgage paid by someone else and will stand to reap a windfall.

Bob, yu’re a nice guy and its good that you think of the poor people who are working to pay your unemployment checks, but don’t worry. The American government is doing more to reduce your spending power than DreamT and the hordes of ghetto people who are on welfare ever could.

Besides, they’re not paying him out of your paycheck – they’re paying him on borrowed money.

“Oh… I know… you’re working on some sort of “invention” or something with a commission.”

Nope, you don’t know. But then, what’s new?

Your feelings about paying taxes and contributing to the unemployment system leave me cold – too much complaining, and I really don’t see the point your rant is trying to make. Unless your point is this:
“I couldn’t help but think about others with less options who were still working in diners, factories, and retail stores working their asses off so I could have the privelage of being unemployed”
Well these people are NOT working so that you can have unemployment benefits. You see the world in a really twisted, and wrong, way.
You know who you remind me of? The older homeowners on Homestead who battled against a new Helicopter path to the Lawrence Kaiser hospital. We’re talking about unfrequent, life-saving flights and these folks assert that because they worked hard to pay off their property, they shouldn’t be bother by the Helicopter noise. The same sense of entitlement permeates from your posts. Just because you work hard and pay your taxes does not make you any better than your neighbor, certainly not one that is temporarily unemployed, struggling or not.

Anon,
There’s been PLENTY of name-calling and mud slinging going on in here. I responded with my opinion, but others are free to make objections and disagreements. I’m perfectly happy with that. Who cares anyway. This is just a form of entertainment for me. Its rather entertaining to see what everyone’s bizzare idea of success is, which again- is fine. I myself love the idea of having a massive piece of land out in the boonies with less people to deal with in general. Others think that a 2 bedroom house in a crammed subdivision is wonderful. That’s fine by me. How we get there is totally up in the air. Some think buying tech stocks, houses, or coming up with facebook 2 is a grand idea. Others think investing in stocks, bonds, and other financial means is the way to go. Again- depends on your perspective. But being the opinionated people we are, don’t be surprised if we happen to disagree.

No DreamT,
I see things VERY clearly. You’re right- those people working in diners, factories, and other low income places aren’t working to pay other people’s unemployment. They would rather not as a matter of fact. This isn’t an issue of what is necessarily fair, but rather what is right. Again- I’ve been on the “other side” and it grated me when I came home to see my unemployed house mate sitting there day after day, not spending every hour making efforts to get a new job.That’s what I did, and yes- I applied to a number of jobs I probably wouldn’t have ‘loved’.

A system is only as good as the people who use it accordingly and correctly. Thus you will get zero sympathy for me regardless of how you are spending your time being laid off. Feel cold if you want. I’ve said my peace on the issue.

bob, do you hear yourself? You’re so busy making hard & fast absolute statements, you aren’t paying attention to what you’re saying.

WG and anon have touched on this, but don’t you suppose nearly EVERY business is founded on some level of speculation? Especially in modern (1960s and later) times. Hell, even this blog was probably founded purely at the expense of burbed and now he’s trying to grow it via advertising dollars.

Your “peace” is all over the place. “No DreamT” followed by “You’re right”? Withholding unsolicited sympathy? What is right is not fair? Your brain is labyrinthic to all but yourself.
Anyway, you may be grated by laziness, but I am grated by arrogance and negativity. To each our own imperfections.

WG – $450/week (before tax, since unemployment checks are taxed sooner or later), but it was good only for 10 more weeks, so about six months total. Definitely better than nothing.
I haven’t found a permanent, stable job yet – only a low-salary startup project. Definitely beats unemployment, though.

Glad to see A Lewis hasn’t abandoned us yet. It’s definitely a death spiral with both Chuckie and Fristy trying to see who can be more unpleasant, though.

anon, I like the idea of Schadenfraud — glee at another’s misrepresentation blowing up in his face. Like when Chuck’s vaunted 94301 purchase turns out to be right on the 94303 soccer field, or better yet, the 95002 Habitrail at a busy intersection next to both a freeway interchange and railroad tracks. Or Fristy’s lectures on how much better Austin is than here, right after fremontrenter checks in, bitten by fire ants.

But forget that, what the heck do you even mean by ‘time is on your side’? Could you spell it out for us?
….
….
Please use a hypothetical example that shows where time is on your side to support your assertion.
——–

Oh Lewis. Those statements are fundamental concepts for getting rich in real estate market (and unless you are “super-unlucky” you are guaranteed to be rich). You should not ask me to deconstruct or explain those statements in terms of economics. Because they are very fundamental.
You know it’s like gravitational force. You can read physics as much you can and try to explain and understand g-force as much you can, but the fact that g-force exists and when you throw a stone up eventually it comes down – what goes up, eventually comes down.
Ooops, probably I gave a very bad example. Don’t try to apply same example in housing market.

The older homeowners on Homestead who battled against a new Helicopter path to the Lawrence Kaiser hospital. We’re talking about unfrequent, life-saving flights and these folks assert that because they worked hard to pay off their property, they shouldn’t be bother by the Helicopter noise.
——

Interesting! Is it recent thing? What was the outcome?

Who wants his equity plummeting due to helicopter noise! Equity is everything – status, prestige, talent, well-roundedness, retirement fund, purchasing power you name it.

Pralay – I posted about it a couple of times in June & July. At the meeting I attended, the complaints were eventually drowned in ridicule by a person’s levelheaded comments followed by applauses. As far as I know, this will proceed as announced, as it should.
Some folks in Santa Clara actually want not only all companies and all apartment complexes kicked out, but also all roads eventually closed to cars. I’m not making it up – serious feedback from the general plan update meetings. It feels like being a homeowner goes to some people’s head as they get older.

Re: #196, I kept glancing at the site address because I was convinced it was something out of The Onion.

Re #200, not even the Republican governors agree with Sarah Palin:

Another Republican governor eyeing a presidential run in 2012 told CNN the event was “odd” and “weird,” and said it “unfortunately sent a message that she was the de facto leader of the party.”In an interview with CNN, it was suggested to Mississippi Gov. Haley Barbour that there has been a feeling among some GOP governors gathered in Miami that Palin has been sucking up all the media oxygen.

Barbour shrugged off that suggestion.”That’s just somebody running down a rabbit trail. There’s plenty of oxygen here,” he said.
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In another shift, Palin, who had been slated to take questions for 20 minutes or so, took just four reporter queries before Texas Gov. Rick Perry ended the news conference.

Any comment about the 553 jump in the stock market? The same thing will happen to the housing market when the rebound occurs — it’ll be very sudden and furious as buyers cave in after a period of low inventory, slow sales and flat prices.

A. Lewis says,
>>RealEstater, have you given up on me? I asked you several more questions, and made a point of responding to what you wrote. Heck, I don’t even think I made a personal attack last time!

I’ve been busy with work. How about this: write up a short list of questios in one post, and I will respond. I don’t have time to sift through 200+ post and locate exactly what you want me to answer.

It’s not complex, just lots of syllables. I was actually going to write “Ah, the vagaries of anonymity” at first. Other words would have needlessly obfuscated my meaning (whereas with my exact meaning, I’m sending twenty people to the closest dictionary – schadenfreude!)

Ha ha ha! Chuckstyle redirection — he is too busy doing Wipro 24×7 IT support to address any of the numerous holes you found, A. Lewis! This way he hopes to put you off, change a few terms, and hope you forget what you were trying to say!

Believe me, all of us have been down this road before, and it pains me to see you making the same mistakes. Just put on your action jeans and kick his ass.

Madhaus,
You are slow by two months – probably due to living in talent-polluted environment of 94087 slum. It was “all clear for take-off” in September when Freddie/Fannie Mac problem got solved. We are flying high now. Very very high.

Chuckstyle redirection — he is too busy doing Wipro 24×7 IT support to address any of the numerous holes you found,
———

In 24×7 IT support mega project, Chuckie’s phone rings:

Chuckie: Hello…
The guy in other end: My computer is not rebooting. What should I do?
Chuckie: What do you mean by not rebooting?
Guy: Well, I powered it on. Nothing happens.
Chuckie: Did you power on? How do you know you switched on power button?
Guy: Ok, I am pretty sure that I switched on power button.
Chuckie: How do you know that you are pretty sure?
Guy: This is too much. You are asking too many counter questions. Ok, could you tell me or check what is wrong in my computer?
Chuckie: What part of wrong do you want to know?
Guy: I just want to get my computer fixed and get back to work.
Chuckie: Worker bee, stop working. Buy home in RBA. Now. Don’t get priced out forever.

“I’ve been busy with work. How about this: write up a short list of questios in one post, and I will respond. I don’t have time to sift through 200+ post and locate exactly what you want me to answer.”

Instead of this, A. Lewis, why don’t you make a post with a link to all your posts with questions?(hopefully RE will not take issue with your aggregation of data)

Any comment about the 553 jump in the stock market? The same thing will happen to the housing market when the rebound occurs — it’ll be very sudden and furious as buyers cave in after a period of low inventory, slow sales and flat prices.

This way he hopes to put you off, change a few terms, and hope you forget what you were trying to say!
——–

Madhaus,
I would got back to the famous quotation quoted in #45. When he has no reply, he would pretend that he did not read. Then after a while, he would start his as usual broken record “inventory is low, buyers will cave in, time is on your side”. This guy will keep doing it as long as he has his job (and I am not talking about his fictitious mega-project).

Informal insider reports show that in healthy companies, there’s a hiring freeze, and less healthy companies are preparing for layoffs. As for interest rates, they would need to go below 5.5% on jumbo to encourage a wave of refinancing. Finally, I’d have thought that employees are among the least likely to gauge whether they’ll be personally laid off – if you want a reasonable answer, ask their senior management.

All of you need to read Michael Lewis’ take on the mortgage meltdown. It wasn’t the fault of unqualified borrowers signing whatever was shoved in front of them. It was Wall Street figuring out that via the CDO market, they didn’t even need unqualified borrowers. Shorting the market created the loan over and over and over. Paulsen can’t bail out the tanked mortgages because they don’t exist.

At the end of 2004, Eisman, Moses, and Daniel shared a sense that unhealthy things were going on in the U.S. housing market: Lots of firms were lending money to people who shouldn’t have been borrowing it. They thought Alan Greenspan’s decision after the internet bust to lower interest rates to 1 percent was a travesty that would lead to some terrible day of reckoning. Neither of these insights was entirely original. Ivy Zelman, at the time the housing-market analyst at Credit Suisse, had seen the bubble forming very early on. There’s a simple measure of sanity in housing prices: the ratio of median home price to income. Historically, it runs around 3 to 1; by late 2004, it had risen nationally to 4 to 1. “All these people were saying it was nearly as high in some other countries,” Zelman says. “But the problem wasn’t just that it was 4 to 1. In Los Angeles, it was 10 to 1, and in Miami, 8.5 to 1. And then you coupled that with the buyers. They weren’t real buyers. They were speculators.”
…

By the spring of 2005, FrontPoint was fairly convinced that something was very screwed up not merely in a handful of companies but in the financial underpinnings of the entire U.S. mortgage market. In 2000, there had been $130 billion in subprime mortgage lending, with $55 billion of that repackaged as mortgage bonds. But in 2005, there was $625 billion in subprime mortgage loans, $507 billion of which found its way into mortgage bonds. Eisman couldn’t understand who was making all these loans or why. He had a from-the-ground-up understanding of both the U.S. housing market and Wall Street. But he’d spent his life in the stock market, and it was clear that the stock market was, in this story, largely irrelevant. “What most people don’t realize is that the fixed-income world dwarfs the equity world,” he says. “The equity world is like a fucking zit compared with the bond market.”

…

Here’s where financial technology became suddenly, urgently relevant. The typical mortgage bond was still structured in much the same way it had been when I worked at Salomon Brothers. The loans went into a trust that was designed to pay off its investors not all at once but according to their rankings. The investors in the top tranche, rated AAA, received the first payment from the trust and, because their investment was the least risky, received the lowest interest rate on their money. The investors who held the trusts’ BBB tranche got the last payments—and bore the brunt of the first defaults. Because they were taking the most risk, they received the highest return. Eisman wanted to bet that some subprime borrowers would default, causing the trust to suffer losses. The way to express this view was to short the BBB tranche. The trouble was that the BBB tranche was only a tiny slice of the deal.

A Lewis,
As math his hard, I cannot comprehend your posts. That means I don’t have ability to answer your questions either. Therefore, I will pretend not to read your posts, giving excuses of “busy in work”.

Then I will post “Lewis, where are you?” to act as if I am really waiting eagerly to answer your questions. But I am hoping you will get bored and won’t post any more comments. In that case I will declare victory. Even if you post something more I will stonewall again and pretend that I did not read your posts.
In the end I will start my broken record again “time is in homeowner’s side……”

RE,
Asking a handful of people on a blog isn’t exactly proof of anything… seeing as we’re all writing on this blog, its perhaps an indication that we’re all at work. In any regards, Sun is laying off another 6,000 people today. They’re based in Santa Clara. This will have an immediate impact on the local RE market, and that’s only from one company. Its happening. Just watch.

Do you see the NYC real estate market crashing due to the financial crisis? Why is the RE market there still doing better than most of the country, and certainly doing way better than the stock market?

nomadic, looking forward to hearing your take on the article. Did you read Liar’s Poker? That was a great book.

The NY metro real estate market has dropped quite a bit. Can’t talk about Manhattan itself, but since my entire family lives in the NE New Jersey suburbs, I know a bit about that area. Properties in high-end (1 acre lots) villages have dropped more than 40%, especially with the executive mansions built on spec that couldn’t sell. Burbed’s favorite destination city of Tenafly, with its excellent schools, is down too.

To claim that the NYC real estate market is unaffected is to claim that the economy in Silicon Valley is unaffected. It’s foolish, it’s ignorant, and it’s wrong. Just what we’ve come to expect from Chuckie. Perhaps there’s an alternate Manhattan in Chuckieland where apartments still sell for ten million.

Yes, as a matter of fact the NYC RE market is becoming a problem. So much so that the NYC public transit fund is facing a 1.2 Billion dollar deficit as a result of a sudden cutoff of real estate sales tax transaction recites. Given that the majority of the layoffs in NYC have only been very recently, it would’ve be logical to see an immediate impact on RE there, but it already is to some extent.

Once again- putting simple factors together leads to results: Unemployment and a slumping economy causes slow sales and falling housing prices.It is and will continue to happen in the RBA.

Sorry, I had to work, and then I felt like watching a movie with my wife, and I forgot to check back in on this blog right away. Your latest posts were after midnight, RE, I don’t always stay up that late reading Burbed…

And I’m not an every day poster here – I just got all involved this week with it, so please be a little more patient waiting for my replies.

If you had time to post more than once asking where I was, I assert you had time to scroll up to at least one of my posts, and answer one of my waiting direct questions. Please don’t be so rude. I took the time to write, you can take the time to read, if you want to validate your criticisms of my arguments.

If you do not want to provide decent counter arguments addressing my points, please don’t post with comments contradicting me, by name. Post about something else that interests you – there’s lot of other stuff to talk about. Otherwise, the others are justified in assuming you have been proven wrong (as “proven” as one can be in a blog discussion :-)).

I’ll answer your poll – I have a job, and I do NOT think I’ll get laid off within 6 months.

I’ll repost my most recent, very brief questions to you:

1) RE #203: so you are implying that soon (less than 12 months?) there will be a furious appreciation of housing prices in RBA because of pent-up demand?

2) Does that mean you think prices have stopped increasing or even gone down in the recent past?

3) I just want to know where you stand on the recent history of RBA home prices. Have they continued to appreciate, in your view, since Jan. 2008?

And here’s another one for you from way back up in the thread.

4) Thinking of the person who bought the house in this posting in Dec. 2005 for $605k, and had to sell it this year for $399k, could you agree with me this was a bad outcome for a real estate investment?

5) Could you agree that kind of thing should be avoided if possible?

These last ones (4&5) are just softballs, not trap questions. My intent is to establish common ground between us – a shared reality, and then we can find out where we differ. It’s my idea of intelligent discourse, and the way to have a productive argument where maybe we both learn something.

Seriously, RE, I’ve not given up on you – you’re a human being, and I’m willing to wipe the slate clean if you’ll get into real discussion with me.

I am not in denial of the facts, like those listings you just posted in 94087. I believe your implications – some houses are still very expensive, and the $/sqft may actually be going up, still, in some neighborhoods.

I think there’s a lot of other places where it’s not like that, and there’s lots to discuss about how the future will look.

Looking forward to your replies.

Please forgive me if there is a long delay before my next post, I am very busy for the rest of today (don’t you love it when your boss puts you on a pet project he’s had for months, is due in a week, and he hasn’t done any of the prep work properly?!), and I have some plans this evening. But I promise I’ll check back in to catch up as soon as I can.

A Lewis,
I know you have said that you haven’t given up on me in post #210, but I am praying with my fingers crossed that you have given me up already. Math is hard. I cannot comprehend. Once you have given up on me, even if with very negative impression on me, I will declare victory. That sounds like very trollish, but it works. I understand that I am the guy who is running away from questions you have posted and I am the guy who is pretending not to read your comments and questions (all though I am reading and posting comments all the time till 12:55 AM). But now I will repeat your “not given up” comment and try to act as if YOU are the guy who is running away.
Sounds like troll? But that’s my job! He he!

If you had time to post more than once asking where I was, I assert you had time to scroll up to at least one of my posts, and answer one of my waiting direct questions. Please don’t be so rude. I took the time to write, you can take the time to read, if you want to validate your criticisms of my arguments.
————

Oh Lewis. He has a multi-timezone, multi-country, multi-million-dollar 24×7 IT infrastructure mega-project. He does not have free time like you and me. He takes great pain to answer our questions while disrupting his work. You must applaud his effort. He appears to be doing mud-throwing with me, anon, bob and others with trivial topics and doing irrelevant polls, which in turn shows that he has enough time read and post comments, but in reality he is super-busy in his 24×7 IT infrastructure mega-project. 😉

A Lewis, Chuckie isn’t posting “facts” about 94087 to support his argument with you. Most of his “facts” are easily disproven if you actually look at the links. For example, the $1.18m Sunnyvale property is a 5/3 home with over 2000 sf, larger than its surrounding neighbors. Similarly, the $1.3m property is also over 2000 sf. The under a mill property is a smaller home, a 3/2 with 1400 sf, typical of the area and somewhat overpriced. (Has Fremont high school, worst in FUHSD.)

Chuckie enjoys posting 94087 properties because he doesn’t understand the neighborhood at all, and he knows that I do. He still has not apologized for claiming that a property there had the better high school when it had the crap one. The high school boundaries were changed in… 1981. Yes, Chuckie gives “helpful advice” based on knowing someone who went to high school there more than 25 years ago. And this is pretty typical of the guy, he doesn’t do any checking on any of his claims. It’s so easy to disprove him, but he’ll keep on bugging you about unrelated topics without admitting he screwed up.

It’s akin to having a battle of wits with a dull four year old who is convinced he knows something about nuclear physics because he heard the word “molecule” on a TV show.

But Chuckie’s point in the 94087 post was that inventory was “low.” Note he did not support this claim. How would one define “low inventory?” Well, there are a number of ways you could do it. This site has some useful stats on the zip. Current inventory is “49.” A helpful inventory graph shows that 94087 inventory was the most volatile in the city, it was the lowest of 4 zips at the beginning of the year and then became the highest. It is now very slightly below 94085, which is a crap zip. The graphs also show Altos Research’s market action index, showing 94087 is a buyer’s market (like everywhere else in the RBA), currently 22.

But lookie what I found here! An old inventory graph for 94087, also from Altos Research. Guess what inventory was for 94087 LAST NOVEMBER? Why look! It was under 25! And now it’s 49! But how can that be? Chuckie says “inventory is low.”

You see, A Lewis, there is no point in having a discussion with Chuckie, because you can trot out all the facts to disprove him so completely he’s bleeding out every orifice he had plus a few new ones. And yet, he’ll keep on asking stupid questions, like that dull four year old, such as the one he’s been going on with me — Do I live in Cherry Chase. And why is this a stupid question?

Because everyone here already knows I live in Cupertino School District since I’ve said it about ten brajillion times. Chuckie knows it too, but he is too limited to keep two ideas in his head at once:

1. madhaus lives in CUSD
2. Cherry Chase is not in CUSD

Somewhere, Chuckie had an idea that because Cherry Chase has some new listings, and I commented on seeing for sale signs, that… this must mean I moved to a different school district in the last six days.

Remember Incrediboy (Syndrome) in the Incredibles, who so interfered with Mr. Incredible that the bad guy got away? And he was so miffed that Mr. I wouldn’t let him be his sidekick that he didn’t even notice he let the bad guy get away?

For example, the $1.18m Sunnyvale property is a 5/3 home with over 2000 sf, larger than its surrounding neighbors. Similarly, the $1.3m property is also over 2000 sf. The under a mill property is a smaller home, a 3/2 with 1400 sf, typical of the area and somewhat overpriced. (Has Fremont high school, worst in FUHSD.)
———

And don’t forget that Chuckie selectively showed three homes which are just listed within last 2-3 days, when there are similar homes in 94087 sitting on market for month after 1 or 2 price reductions.

That is how Chuckie and many real estate agents work without giving the true and complete picture of market. Fortunately unlike 1988 or 1998 there is enough real estate information in internet today. Internet must have done tremendous disservice to Chuckie And Co.

RealEstater – Ask Wikipedia
I’ll paste it since you’ll be too busy to click.
“Monta Vista High School is a four-year comprehensive public high school located in the Silicon Valley suburb of Cupertino, California, USA. Part of the Fremont Union High School District, [etc..]”

DreamT, what do you think? This is about the eighth time it’s been explained to him and he still doesn’t get it. And yet we should all take his advice on where to park hundreds of thousands of dollars on real estate.

I don’t think I’d trust his opinion on which lemonade stand was better.

RE, I won’t ever give up on you, so feel free to respond at any time. I’m listening.

But I think I’ll direct a lot of my questions to other people for a while, because I’d like more informed discussions to build my knowledge.

madhaus, or any of the other informed posters here, would you care to give me an overview of the current RBA limits on the peninsula? I know burbed likes to point out the horrifically funny listings, but there really are some pretty bullet proof neighborhoods left, aren’t there?

I want to know how the boundaries of the RBA have shrunk from jan 06 to 07 to 08 to Nov. 08.

Who’s price per sqft is still going up? Who has gone flat or dropped a lot? And I’m only interested in ‘normal’ single family homes – between 2-4 bedrooms, 1000-2000 sqft.

How is inventory? Do REOs really happen in the best neighborhoods, or is that just angry renter wishful thinking?

Are RBA people really going to suffer from an Alt-A reset meltdown, and walk away because they’re underwater?

Oops, that’s a lot of questions…

Hey, RE, you can answer them, too, if you want, and I’ll compare the responses. Of course, it’d be nice if you responded to my last post, too.

Are RBA people really going to suffer from an Alt-A reset meltdown, and walk away because they’re underwater?

This really is the key question, A Lewis. A lot of us have been wondering where to get these stats, namely how much of the RBA is underwritten with toxic mortgages. The NY Fed had the data online but removed it and now there’s just maps. But if we could get a sense of what percentage of loans since 2004 were Pay Option ARM, by zip, that really would answer those questions. I am sure First Core Logic has the answers, but they aren’t providing them for free.

The square foot numbers were dropping even in the good neighborhoods after spring bounce. 94301 got some insane numbers over a thou a square foot, which has since dropped back to $800 or so.

As to inventory, one of the usual issues Chuckie squirrels on is between listed inventory and “quality” inventory; he then eliminates any listing on a busy street, on a corner, near a fire station, near power lines etc etc etc. So only 20% of listings in RBA zips are RBA property to him. The rest of us can discuss the real zips.

Is RBA shrinking? I had a post on burbed suggesting exactly that. Have a look. Agree with me?

I know burbed likes to point out the horrifically funny listings, but there really are some pretty bullet proof neighborhoods left, aren’t there?

Not really. The good ones are down around 10%. See the above link Madhaus provided above.

Who’s price per sqft is still going up? Who has gone flat or dropped a lot?

Nobody’s. The places that dropped a lot in the past 6 months are the low end, and as you go up the price scale, the percentage drop diminishes. This is consistent with the fact that the really high end did not see the gains that the low end did in the past 10 years.

How is inventory? Do REOs really happen in the best neighborhoods, or is that just angry renter wishful thinking?

Are RBA people really going to suffer from an Alt-A reset meltdown, and walk away because they’re underwater?

We’ll see – this is speculation and nothing more. Something like 1/5 are underwater. Only time will tell. The banks could rewrite those loans, tech *COULD* take off again, etc etc. In any case, many people will be faced with the choice of either staying or sell for a loss.

Both of your posts were so long-winded, and involved useless aggregate data, so we can’t be friends anymore.

ROTFL.

I’ll check those posts, thanks VERY MUCH for your time and thought.

Are there any other East-Bay’ers here who want to talk about the RBA boundaries on this side?

I know Piedmont, Oakland 94618 (Upper Rockridge/Montclair), Kensingtion, and in a way Albany (because of the schools – the housing stock is pretty small and old, though Craftsman houses are actually charming, not just Realtor-charming). Also various parts of Berkeley – anywhere up in the hills with a view. Are any of these neighborhoods ‘slipping’? Any big changes?

Well, Mr. A. Lewis, even if you have given up on me, I will not give up on you!

Ask Chuck about the east bay sometime. He’ll make it clear he’s never been there. Or he won’t respond. Which will just reinforce my previous statement.

I haven’t looked at it much, but I would imagine that the nicer parts of the east bay haven’t come down a whole lot – just like the nicer parts on the peninsula. I’m talking Oakland/Berkeley hills and Piedmont with ranges from a mil upward. It will be a while before the sub-prime meltdown propagates to that area – if at all. We’re talking years. That is my speculation.

As to inventory, one of the usual issues Chuckie squirrels on is between listed inventory and “quality” inventory; he then eliminates any listing on a busy street, on a corner, near a fire station, near power lines etc etc etc. So only 20% of listings in RBA zips are RBA property to him.
———–

BTW, the term “quality” would be less subjective. Chuckie uses the term “desirable”. Using this term RBA home price cannot drop. For example this Sunnyvale trash was “desirable” for some guy in 2005 and he paid $600K, therefore it was part of RBA that time.

Hey, RE, you can answer them, too, if you want, and I’ll compare the responses. Of course, it’d be nice if you responded to my last post, too.

I see you posted about something else in the meantime.
———–

Those comments are posted in helaf of me by my sub-team in mega-project. I am mega-busy and don’t time to read long posts full of herd mentality (specially by Lewis).
Let me summarize the discussion (ie. let me pretend that Lewis and Madhaus lost in argument):

– Inventory is low in RBA
– Interest rate is low
– There will be surge of buyers pretty soon
– Time is in homeowner’s side
– Stock is down. Real estate is the destination investment where there is no loser.

I just read the NY Times article on the NYC real estate market. There’re plenty of similarities with what you read about the “Bay Area” market. Basically, the fringe areas have dropped, places like Harlem, and areas on the outskirts. Yes, those are the EPA/Oakland equivalents. The “Real NYC”, areas like 5th Ave., Madison Ave., etc., have appreciated another 35%. Predicably, the Bubble crowd is getting all worked up:
— New York City real estate is about to crash any minute now!
— The market downturn is spreading from Harlem inward to upper east side! Pretty soon renters who have been sitting out will be buying up Park Ave.!

LOL! Do you have any idea what kind of wealth is out there? Even if 90% of their assets are wiped out, their financial independence will still be unshaken. All they need to do is sell 1 painting in their collection, and they can buy up the move-up property of madhaus’ dreams with cash.

anon, I just returned from a busy day with my girlfriend Bitsy, from prep school, she and I were just talking about how the nouveau riche think they understand how wealth is managed. Quite amusing, that.

It’s apparent that Chuckie either did not read the whole article or cherry picking. Instead of “Real NYC”, how about “Real Manhattan” – excluding Lower East Side, East Village.

Other neighborhoods that experienced price drops include the Lower East Side and the East Village, where median prices fell 5.5 percent; and Carnegie Hill, where co-op prices decreased 7.2 percent. Median prices in Hamilton Heights and Morningside Heights dropped 30 percent, with sales decreasing to only 19 from 67 in 2007. In Washington Heights, median prices went down 6.3 percent, but the number of sales increased to 24 from 18 in 2007.

Or may be we can exclude Midtown West too

Mr. Kemper specializes in Midtown West and Hell’s Kitchen, where median prices on co-ops went down 10.8 percent, to $540,000, and median prices on condos went down 8 percent, to $1.01 million.
…
…
Ms. Silver said that Midtown East and Turtle Bay, an area delineated as from 42nd to 59th Street and from the Avenue of the Americas to the East River, seems to be experiencing a similar trend. While not an emerging neighborhood, it often has volatile prices, especially in the eastern stretches farthest from the subway.

So here you go. You got another real Gruyere cheese with full of hole – this time it is from Manhattan, Real Manhattan.

“anon, I just returned from a busy day with my girlfriend Bitsy, from prep school, she and I were just talking about how the nouveau riche think they understand how wealth is managed. Quite amusing, that.”

Pralay sure have friends in high places, and his friend is right. Sales volume has dropped there, but prices haven’t changed much.
——

Considering the fact many homeowners are hopelessly optimistic about housing market, I would not bet for them being right.

Prices haven’t changed much? I thought Chuckie would be talking about 7% appreciation.
Unless someone is talking about a few blocks of Mission Hills (and that’s just a small subset of mission district), it would be difficult to put any positive spin for Fremont market – even from real estate industry.

OK, A. Lewis, let me get started with answering some of your questions, before you get completely sidetracked by madhaus who’s all too eager to be my spokesperson.

Q: 1) RE #203: so you are implying that soon (less than 12 months?) there will be a furious appreciation of housing prices in RBA because of pent-up demand?

A: I actually answered this already. I said the following: 1)One should not time the market. Only God can tell you exactly what will happen next 2) Real estate is a long term investment. If you keep thinking about the next 12 months, you’ll lose sight of the strategy.

Q: Does that mean you think prices have stopped increasing or even gone down in the recent past?

A: I answered this too. Real estate is always local. The answer varies depending on where you’re talking about. I’ve never denied that in some areas, prices have dropped dramatically.

Q: I just want to know where you stand on the recent history of RBA home prices. Have they continued to appreciate, in your view, since Jan. 2008?

A: Similar answer as previous question. In some parts of the RBA, home prices are higher or about the same as Jan 2008.

Q: Thinking of the person who bought the house in this posting in Dec. 2005 for $605k, and had to sell it this year for $399k, could you agree with me this was a bad outcome for a real estate investment?

A: No question. Short term investment in real estate can be risky.

Q: Could you agree that kind of thing should be avoided if possible?

A: of course. At the risk of being accused of being a “broken record”, I remind everyone of the basic real estate investing principles: Pay attention to location, location, location. Don’t play the refinancing games; use 30 year fixed. Plan to own real estate long term. These are all the different ways to mitigate risk, regardless of market conditions.

Of course, your follow up to this is that if he waits long enough, it will eventually rebound to $600,000. To which A. Lewis will reply that the owner can’t possibly make up for inflation when he took a $200,000 hit right off the bat. At this point, you’ll respond angrily with an irrelevant pseudo-maxim. Shortly thereafter, A. Lewis will finally dismiss you for being utterly inept (if he hasn’t already).

And then, everybody who reads burbed will know better than to ask RE a question.

>>Of course, your follow up to this is that if he waits long enough, it will eventually rebound to $600,000. To which A. Lewis will reply that the owner can’t possibly make up for inflation when he took a $200,000 hit right off the bat. At this point, you’ll respond angrily with an irrelevant pseudo-maxim.

Speaking of donkeys, or ass, the above is a perfect example. After just explaining various aspects, the guy comes back with the above thoughtless post. Did I not just talked about the importance of choosing the right location and other ways of risk mitigation?

Yes, this did happen to this person. He was in the wrong place at the wrong time. It can happen to you when you’re driving down FWY 101 also. I talked about this as well. You cannot completely eliminate risk. Many of you probably have 40% drop in your 401K too. Did you not see it coming?

>>I live in a small apartment and drive a five-year-old car. I don’t have cable TV or Internet at home. I keep the temperature at 80 degrees in the summer and never turn the heat on in the winter. My debt is a very small fraction of my net worth. I have cash to pay off my debt.

I hope no one here works at Sun, but I found this article on Bloomberg.com about the layoffs earlier today and thought this turn of phrase was hilarious:

Louis Miscioscia, a Boston-based analyst at Cowen & Co., said results have been disappointing for seven straight quarters. He compared Sun to a comatose patient.

“You’re hooked up to the machine, everything’s going to keep working because your body is still there, but are you ever going to see that comeback?” he said. “You might be around for 40 more years before you die. That’s the situation.”

I hesitated a long time, but thought humor’s the last protection before death and despair, and it’s Friday.
The worst part is we’re probably only seeing the beginning of this.
That said, obituaries, well that’s a thought.

OK, A. Lewis, let me get started with answering some of your questions, before you get completely sidetracked by madhaus who’s all too eager to be my spokesperson.

Q: 1) RE #203: so you are implying that soon (less than 12 months?) there will be a furious appreciation of housing prices in RBA because of pent-up demand?

A: I actually answered this already. I said the following: 1)One should not time the market. Only God can tell you exactly what will happen next 2) Real estate is a long term investment. If you keep thinking about the next 12 months, you’ll lose sight of the strategy.

Q: Does that mean you think prices have stopped increasing or even gone down in the recent past?

A: I answered this too. Real estate is always local. The answer varies depending on where you’re talking about. I’ve never denied that in some areas, prices have dropped dramatically.

Q: I just want to know where you stand on the recent history of RBA home prices. Have they continued to appreciate, in your view, since Jan. 2008?

A: Similar answer as previous question. In some parts of the RBA, home prices are higher or about the same as Jan 2008.

Q: Thinking of the person who bought the house in this posting in Dec. 2005 for $605k, and had to sell it this year for $399k, could you agree with me this was a bad outcome for a real estate investment?

A: No question. Short term investment in real estate can be risky.

Q: Could you agree that kind of thing should be avoided if possible?

A: of course. At the risk of being accused of being a “broken record”, I remind everyone of the basic real estate investing principles: Pay attention to location, location, location. Don’t play the refinancing games; use 30 year fixed. Plan to own real estate long term. These are all the different ways to mitigate risk, regardless of market conditions.

So, RE says he already answered the questions, then he refers the reader up to the previous answer – which was to say that he had already answered this question.

What he really means is:

In short, I have already answered your questions with answers, Mr. A. Lewis, because the questions were answered previously. Now that I have gotten started telling you that all your questions have been answered previously, do you have any questions?

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The posts on this weblog are provided "AS IS" with no warranties, and confer no rights. The opinions expressed herein are my own personal opinions and only represent the view of Burbed.com's editor. Comments are the views of commenters, not Burbed. If companies, properties, etc are mentioned on this blog, you should assume that I have a financial stake in them. Trust no one.